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WorksheetsBFN2234 PRINCIPLE OF CORPORATE FINANCE
Total questions: 10
Worksheet time: 19mins
The cost of a resource that may be relevant to an investment decision even when no cash changes hand is called a (an):
Sunk cost
opportunity cost
working capital
historical cost
Net Working Capital should be considered in project cash flows because:
Firms must invest cash in short-term assets to produce finished goods
They are sunk costs
Firms need positive NPV projects for investment
Firms need negative NPV projects for investment
A firm owns a building with a book value of $150,000 and a market value of $250,000. If the building is utilized for a project, then the opportunity cost ignoring taxes is:
$100,000
$150,000
$250,000
$350,000
The real interest rate is 3% and the inflation rate is 5%. What is the nominal interest rate?
3%
5%
8%
8.15%
Capital equipment costing $250,000 today has 50,000 salvage value at the end of 5 years. If the straight line depreciation method is used, what is the book value of the equipment at the end of two years?
$200,000
$170,000
$140,000
$50,000
For project Z, year-5 inventories increase by $6,000, accounts receivables by $4,000 and accounts payables by $3,000. Calculate the increase or decrease in working capital for year-5.
Increases by $6,000
Decreases by $4,000
Increases by $7,000
Decreases by $7,000
If the depreciation amount is $100,000 and the marginal tax rate is 35%, then the tax shield due to depreciation is:
$35,000
$100,000
$65,000
None of the above
A firm has a general-purpose machine, which has a book value of $300,000 and is sold for $500,000 in the market. If the tax rate is 35%, what is the opportunity cost of using the machine in a project?
$500,000
$430,000
$300,000
$130,000
Given the following data for Project M:
1) Cash Flows in year 0= -200, year 2=150, year 3=120
2) Real discount rate = 5%
3) Nominal discount rate = 10%
Calculate the NPV of the project:
$51.70
$35.54
$45.21
None of the above
The cost that is incurred as a result of past, irrevocable decisions and is irrelevant to future decisions is called:
Sunk cost
Opportunity cost
Incremental cost
Reliable cost
