6. The modified accelerated cost recovery system (MACRS) allows an increase:
In total depreciation over the asset's life
In annual depreciation during earlier years
In the assets depreciable cost basis
In real but not nominal depreciation expense
7. Your grandmother has promised to give you £5,000 when you graduate from university. She is expecting you to graduate two years from now. What happens to the present value of this gift if you delay your graduation by one year and graduate three years
Remains constant
Becomes negative
Decreases
Increases
8. What effect is expected at the end of the life of a project that initially required a $20,000 increase in net working capital?
The firm receives a $20,000 cash inflow
No effects are expected because the $20,000 is now a sunk cost
The $20,000 must now be paid by the firm
Taxable income is reduced by $20,000
9. A firm is considering expanding its current operations and has determined the internal rate of return on that expansion is 12.2%. The firm's WACC is 11.8%. Given this, you know the:
Expansion should be undertaken as it has a positive net present value
Project will have a lower debt-equity ratio than the firm's current operations
Project has slightly more risk than the firm's current operations
Appropriate discount rate for the project is between 11.8% and 12.2%
10. Which of the following should be assumed about a project that requires a £100,000 investment at time-period zero, then returns £20,000 annually for 5 years?
Irr = negative
NPV = negative
Profitability Index = 0
NPV = 0
11. If the "life" of a potential investment is 5 years and its discounted payback is also 5 years, the investment's NPV is:
Positive
Can't say with the information given
Zero
Negative
12. corporation donates a valuable painting from its private collection to an art museum. Which of the following are incremental cash flows associated with the donation?
The deduction from income that it declares for its charitable gift
All of these
The current market value of the painting
The price the firm paid for the painting
13. Why is debt financing said to include a tax shield for the company?
Taxable income is reduced by the amount of the interest
Taxable income is reduced by the amount of the debt
