BU 440 BU440 EXAM 2 ANSWERS - ASHWORTH

BU 440 BU440 EXAM 2 ANSWERS - ASHWORTH

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BU440 Managerial Finance II Exam 2 Answers
Question 1

5 / 5 points
__________ are an accounting measure of performance during a specific period of time, while __________ is the actual inflow or outflow of money.
Question options:
a) 
Profits; cash flow

b) 
Cash flows; profit

c) 
Dividends; cash flow

d) 
Profits; a dividend

Question 2

5 / 5 points
The __________ a capital asset is not part of the MACRS and is ignored for depreciation expense.
Question options:
a) 
salvage value of

b) 
dividends paid from

c) 
inventory from

d) 
straight-line value of

Question 3

5 / 5 points
Operating cash flow (OCF) is equal to what?
Question options:
a) 
EBIT - depreciation + taxes

b) 
EBIT + depreciation - taxes

c) 
EBIT - depreciation - taxes

d) 
EBIT + depreciation + taxes

Question 4

5 / 5 points
A gain on disposal is recognized when the selling price of the asset is __________ the book value.
Question options:
a) 
greater than

b) 
equal to

c) 
less than

d) 
greater than or equal to

Question 5

5 / 5 points
A firm is considering purchasing two assets. Asset A will have a useful life of 15 years and cost $3 million; it will have installation costs of $400,000 but no salvage or residual value. Asset B will have a useful life of six years and cost $1.3 million; it will have installation costs of $180,000 and a salvage or residual value of $300,000. Which asset will have a greater annual straight-line depreciation?
Question options:
a) 
Asset A has $30,000 more in depreciation per year.

b) 
Asset A has $40,000 more in depreciation per year.

c) 
Asset B has $30,000 more in depreciation per year.

d) 
Asset B has $40,000 more in depreciation per year.

Question 6

5 / 5 points
__________ costs each year do not reflect cash flow because the actual purchase and installation (outflow of dollars) of the asset have already taken place.
Question options:
a) 
Depreciation

b) 
Sunk

c) 
Opportunity

d) 
Working capital

Question 7

5 / 5 points
Fully depreciated assets __________, so any proceeds from sale at disposal are taxable gains.
Question options:
a) 
always have a market value of zero

b) 
have a positive book value

c) 
have a negative market value

d) 
have a book value of zero

Question 8

5 / 5 points
A major metric of a company's health and its prospects for a long life is how much __________ it can generate.
Question options:
a) 
cash flow

b) 
depreciation

c) 
tax deferral

d) 
net income

Question 9

5 / 5 points
The __________ are critical to business decisions, business growth, and ultimately business success.
Question options:
a) 
risk and timing, but not the amount, of cash flow

b) 
the currency denomination of profits

c) 
risk and profits, but not the amount, of cash flow

d) 
timing and amount of cash flow

Question 10

5 / 5 points
A firm is considering purchasing two assets. Asset L will have a useful life of 20 years and cost $5 million; it will have installation costs of $1 million but no salvage or residual value. Asset S will have a useful life of eight years and cost $2 million; it will have installation costs of $500,000 and a salvage or residual value of $400,000. Which asset will have a greater annual straight-line depreciation?
Question options:
a) 
Asset L has $12,500 more in depreciation per year.

b) 
Asset L has $37,500 more in depreciation per year.

c) 
Asset S has $12,500 more in depreciation per year.

d) 
Asset S has $37,500 more in depreciation per year.

Question 11

5 / 5 points
The building of the __________ cash flow of a project is the cornerstone of the financial decision models.
Question options:
a) 
depreciation

b) 
incremental

c) 
accounting

d) 
tax

Question 12

5 / 5 points
When a depreciable asset is sold, a tax gain or tax loss on disposal is calculated based on the book value of the asset at the time of disposal. If a __________ has occurred, __________ are incurred.
Question options:
a) 
gain; tax reductions

b) 
gain; taxes

c) 
gain; tax credits

d) 
loss; taxes

Question 13

5 / 5 points
A firm has revenue of $50,000, the cost of goods sold is $23,000, other expenses (from selling and administration) are $14,000, interest expenses are $4,000, and depreciation is $5,000. What is the EBIT?
Question options:
a) 
$4,000

b) 
$8,000

c) 
$13,000

d) 
$27,000

Question 14

5 / 5 points
__________ cash flow is the increase in cash generated by a new project above the current cash flow without the new project.
Question options:
a) 
Future

b) 
Current

c) 
Discounted

d) 
Incremental

Question 15

5 / 5 points
The current book value of an asset serves as the basis for determining the gain or loss:
Question options:
a) 
at retention.

b) 
at book value.

c) 
at market value.

d) 
at disposal.

Question 16

5 / 5 points
In terms of revenues and costs for a project, which of the statements below is FALSE?
Question options:
a) 
Projected revenues and costs are estimates of future activity.

b) 
Estimates of revenues and costs begin with operating cash flow of the project.

c) 
Projected revenues and costs form the basis of the potential for a project's acceptance or rejection.

d) 
Estimates of revenues and costs begin with sales forecasts and the production costs associated with the sales forecast.

Question 17

5 / 5 points
Managers typically look at the initial outlay for the project as its capital expenditure and determine __________ from this capital expenditure.
Question options:
a) 
interest expenses

b) 
dividends

c) 
depreciation

d) 
CEO expenses

Question 18

5 / 5 points
The advantage of __________ over __________ depreciation is that you can write off more of your capital costs in the earlier years.
Question options:
a) 
straight-line depreciation; the modified accelerated cost recovery system

b) 
straight-line depreciation; straight-line deductions

c) 
MACRS; straight-line

d) 
MACRS; straight-line deductions

Question 19

5 / 5 points
To project the appropriate anticipated cash flow for a project, we must put all cash flow knowledge together. This includes __________ of the incremental cash flow.
Question options:
a) 
both the amount and timing

b) 
the amount

c) 
the timing

d) 
the amount but not the time

Question 20

5 / 5 points
Most businesses fail because their __________ dries up.
Question options:
a) 
net working capital

b) 
cash flow

c) 
liabilities

d) 
tax shield



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