答案和详解如下！
Question 8 Part 1) If Haggerty decides to properly allocate the maintenance, land-purchase, and equipment-installation expenses Jenkins claimed were connected with the new factory project, which of the following numbers on the capital-budgeting model will be least likely to change? A) The accept/reject recommendation. B) The initial outlay. C) Year 4 depreciation. D) Working capital.
The correct answer was D) Working capital. Working capital will not be affected. The maintenance contract is a sunk cost and should not be included in the calculation. However, the use of the land is an opportunity cost, and should be included in the analysis. Land is not usually depreciable, so it will not affect depreciation. However, the installation expense for the specialized machinery will be added to the cost basis of the machinery, which will affect depreciation in every year after Year 1. While the land was not purchased at the same time cash is paid to the builder, the cost of the land can only be accounted for as part of the initial outlay. While the effect of the higher cost basis for the equipment has a very small effect on the project’s NPV, the addition of $30 million in land costs to the initial outlay drops the NPV from positive to negative, changing the accept/reject recommendation. This question tested from Session 8, Reading 31, LOS c Part 2) In the last year of the new factory project, cash flows will be closest to: A) $95.71 million. B) $91.74 million. C) $90.21 million. D) $88.00 million.
The correct answer was D) $88.00 million. To calculate cash flows for Year 6, we must determine both the operating cash flow and the terminal value. Based on $205 million in sales, $65 million in fixed costs, variable costs equal to 40 percent of sales, and a 34 percent tax rate, the operating cash flow = ($205 − $65 − $82) × (1 − 34%) = $38.28 million. Depreciation expenses are one year’s share of the start-up expenses depreciated on a straight line over six years, and one year’s share of the equipment purchased in Year 1, depreciated on a straight line over five years. Depreciation = ($85 million for building − $35 million salvage value) / 6 + $20 million for equipment − $3.25 million salvage value) / 5 = $11.68. Operating cash flow = cash from factory operations + (depreciation × t) = $42.25 million. The terminal value represents the salvage value of the building and equipment, adjusted for taxes, plus the return of the $7.5 million in working capital added in Year 2. Terminal value = ($35 million for the building + $3.25 million for the equipment) + $7.5 million for working capital = $45.75 million. Since the market value and book value of the building and equipment are the same, there is no taxable gain or loss, and no need for a tax adjustment in the terminal-value calculation. Year 6 Cash flows = $88.00 million. This question tested from Session 8, Reading 31, LOS c Part 3) Which of the following statements about the effect of inflation on the capital-budgeting process is most accurate? Statement 1: Inflation is reflected in the WACC, but future cash flows should still be adjusted when calculating the NPV.
Statement 2: Inflation will cause the WACC to decrease.
Statement 3: Inflation tends to exert upward pressure on the NPV.
Statement 4: Because the IRR does not depend on the WACC, inflation has no effect on it.
A) Statement 1 only. B) Statements 2 and 3. C) Statements 3 and 4. D) Statements 1 and 2.
The correct answer was A) Statement 1 only. Inflation causes the WACC to increase, so Statement 2 is false. Because the WACC reflects inflation, future cash flows must be adjusted to avoid a downward bias, so Statement 1 is true. Both the NPV and the IRR will tend to decline if cash flows are not adjusted – Statements 3 and 4 are false. This question tested from Session 8, Reading 31, LOS c Part 4) Jenkins advice is correct with respect to: A) Comments 1 and 2. B) Comment 4, but incorrect with respect to Comment 1. C) Comments 3 and 4, but incorrect with respect to Comment 2. D) Comment 2, but incorrect with respect to Comment 4.
The correct answer was D) Comment 2, but incorrect with respect to Comment 4. Potential cannibalization of sales should be reflected in the budget, so Comment 2 is correct. The maintenance contract represents a sunk cost and should not be included in any capital budgeting, so Comment 1 is incorrect. Since the land could be used for another purpose, it represents an opportunity cost. The value of the land should be reflected in the budget, so Comment 4 is incorrect. Installation costs add to the purchase price of the equipment, increasing its depreciable basis over the life of the item. They should not be charged as a variable cost, so Comment 3 is incorrect. This question tested from Session 8, Reading 31, LOS c Part 5) In Year 2 of the new factory project, cash flows will be closest to: A) $15.61 million. B) $19.35 million. C) $23.32 million. D) $23.11 million.
The correct answer was A) $15.61 million. Verban begins selling products in the second half of Year 2, so sales and expenses are half of what is projected on an annual basis. $102.5 million in sales, $32.5 million in fixed costs and (102.5 × 0.4) = $41 million in variable expenses yield pretax cash flows of $29 million and after-tax cash flows of $19.41 million. Depreciation expenses are one year’s share of the start-up expenses depreciated on a straight line over six years, and one year’s share of the equipment purchased in Year 1, depreciated on a straight line over five years. Depreciation = ($85 million for building − $35 million salvage value) / 6 + ($20 million for equipment − $3.25 million in salvage value) / 5 = $11.68 million In Year 2, the first year of production, Verban also adds $7.5 million in working capital. Cash flow = cash from factory operations + depreciation × t − additions to working capital = $15.61 million. This question tested from Session 8, Reading 31, LOS c
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发表于 2008-5-17 17:21
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