20 MCQ's

1) A new machine was purchased for $10,000 with a life of 4 years and an expected $1,500 salvage value. Its annual operating costs were as follows:

If the MARR is 10%, the ANNUAL equivalent cost of the machine is closest to:
a.            $11,725
b.            $10,659
c.            $8,620
d.            $11,384

2) The following table gives the net cash flows that each of the mutually exclusive projects (A and B) generate over their useful life of 2 years. At MARR 10%, we have to select one alternative.

Which project is better?
a)  Project A
b)  Project B
c)  Neither project is acceptable
d)  Not enough information to make a decision

3) Using the rule of 72, how many years will it take to double your investment if the nominal interest rate is 12% compounded continuously?
a.  7.20 years
b.  5.65 years
c.   5.68 years
d.   6.00 years

4) Assume that you have the following annual cash flows for which the ROR=10%.  Find the missing value for the third cash flow

a) $218
b) $283
c) $267
d) $255

1) The following investment is classified as?

a.  Simple – 1 Actual ROR
b.  Non-Simple – 1 Actual ROR
c.  Simple – up to 2 Actual RORs
d.  Non-Simple – up to 2 Actual RORs

2) A new product design is expected to require $10,000 in tooling which will be worth nothing in 5 years when the project ends.  Assuming an interest rate of 10% annually and annual expenses of $3,000 to produce 3000 units per year.  What is the average cost per unit?
$1.00
188
$2.39
$1.67

3) Using the rule of 72, how many years will it take to double your investment if the nominal interest rate is 12% compounded continuously?
a.  7.20 years
b.  5.65 years
c.   5.68 years
d.   6.00 years

4)  What is the Present Cost of  a 5 year service contract where you will pay $5000 initially, and this will decrease at a rate of $500/year starting in year one (i.e. your year 1 payment will be $4,500) and will end in year 5 (i.e. 6 total payments).  (i=10% annually compounded)?
a.-$17,204
b.-$19,954
c.-$18,628
d.-$19,523

1)  Which of the following is an example of a fixed cost?
a) Equipment cost
 b)   Power cost
c)  Labor cost
d)  Material cost

2)  Which of the following is an example of a variable cost?
a)  Building cost
b)  Equipment cost
c) Labor cost
d)  Property taxes

3)  Given a facility with a total fixed cost of $420, variable cost per unit of $20, and a selling price per unit of $30, which of the following is the profit at a forecasted production level of
a. $80
b. $500
c. $580
d. $420

4)  Engler Corporation manufactures specialized blades. Last year the company manufactured and sold 30,000 blades. This year it is planning on manufacturing 35,000 blades without adding new machinery and equipment (i.e. fixed costs). Its total estimated cost for the
30,000 units it made last year are as follows:

What is the break-even price for the blades?
a) $29.67
b) $29.04
c) $25.83
d) $25.17

1)  Which of the following is not a requirement for an asset to be depreciable?
a)  It must have a life longer than 1 year.
b)  It must have a cost basis greater than $1,000.
c)  It must be held with the intent to produce income.
d)  It must wear out or get used up.

2)  The concept similar to depreciation that is applied to natural resources is called what?
a)  Depletion
b)  Declining balance
c)  Amortization
d)   MACRS

3)  A lumber company purchases and installs a wood chipper for $200,000.  The chipper is classified as MACRS 7-year property.  Its useful life is 10 years.  The estimated salvage value at the end of 10 years is $25,000.  If you are using MACRS which of the following is closest to the first-year depreciation?
a)  $17,500
b)  $20,000
c)  $25,008
d)   $28,580

4)  Hunter Inc. just purchased an air compressor in December 2010 priced at $160,000.
Additional charges of $10,000 were incurred for site preparation. The compressor is
classified as 5-year MACRS class property. Hunter is considering selling the compressor for $85,000 in July 2011. Compute the book value that should be used in calculating the taxable gains.
a)  $108,800
b)  $57,600
c)   $102,400
d)   $65,280

1)  MACRS deductions are a combination of which other methods of depreciation?
a)  Sum-of-year’s-digits and straight line
b)  Sum-of-year’s-digits and declining balance
c)  Double declining balance and 150% declining balance
d)  Double declining balance and straight line

2) A company purchased a commercial building for $100,000 and sold it 2 years later for $180,000. They depreciated the building by $6,000 during this time. Their gains tax rate is
34%. Which of the following is the closest to the taxes they owe?
a) $29,200
b) $34,000
c) $28,700
d) $35,000
 
3) Which of the following statements is true?
a)  Tax rates are based on two flat-rate schedules, one for individuals and one for businesses.
b)  When businesses subtract expenses they always include capital costs.
c)  For businesses, taxable income is total income less depreciation and ordinary expenses.

d)  When quantifying depreciation allowances, one must always divide first cost by the MACRS 3-year life.

4) The correct calculated taxes due on a corporate taxable income of $13,000,000 are closest to which of the following?
a) $3,400,000
b) $4,420,000
c) $4,450,000
d) $4,550,000