APSC 221 Midterm 2 Exam Questions with Correct Answers Latest Update 2025/2026
use-related physical loss, time-related physcial loss, functional loss - Answers reasons for
depreciation
market value - Answers estimated value an asset can be sold for in an open market (real value if
sold)
book value - Answers estimated value of an asset for accounting purposes
scrap value - Answers real or estimate value of an asset at the end of its physical life
salvage value - Answers real or estimated value of an asset at the end of its useful life
managerial decisions, planning decisions, taxes - Answers reasons for depreciation model
straight-line depreciation - Answers assumes rate of loss in value of an asset is uniform for all
periods of its useful life
declining-balance depreciation - Answers assumes rate of loss of current period is proportional
to the book value of previous period
Progressive tax rate - Answers percentage of taxable income increases with total income
true - Answers Taxable income equals total income minus deductions (i.e. tax credits)
Tax credits - Answers concern certain costs that are taxed at a reduced rate
corporate income taxes - Answers Flat tax rate regardless of profit, but proportional to size of
company
true - Answers Small business deductions can reduce tax rate
before-tax-MARR - Answers impact of taxes is implicitly taken into account, by setting a high
MARR
after-tax-MARR - Answers impact of taxes is explicitly taken into account, by setting a low
MARR
𝑀 𝐴 𝑅 𝑅 𝑎 𝑓 𝑡 𝑒 𝑟 −𝑡 𝑎 𝑥 ≅ 𝑀 𝐴 𝑅 𝑅 𝑏 𝑒 𝑓 𝑜 𝑟 𝑒 −𝑡 𝑎 𝑥 × (1 − 𝑡 ) - Answers after-tax
MARR equation
Before-Tax IRR - Answers calculated using before tax cash flows
After-Tax IRR - Answers calculated using after tax cash flows.
𝐼 𝑅 𝑅 𝑎 𝑓 𝑡 𝑒 𝑟 −𝑡 𝑎 𝑥 ≅ 𝐼 𝑅 𝑅 𝑏 𝑒 𝑓 𝑜 𝑟 𝑒 −𝑡 𝑎 𝑥 × (1 − 𝑡 ) - Answers after-tax-IRR
equation
, Capital expense - Answers occurs when a firm acquires a depreciable asset
true - Answers Depreciation is recorded as an expense, thus reduces net income and taxes
Capital Cost Allowance - Answers maximum level of capital expenses (depreciation) a firm can
claim
to monitor calculation method and limit depreciation claime - Answers Why was CCA system
created?
true - Answers use declining balance method to calculate CCA
Half Year Rule - Answers Only half of the capital cost of acquiring an asset can be claimed in the
UCC for the first year. The remaining half is claimed the following year.
to increase tax revenues since most companies would buy assets at the end of the fiscal year to
decrease profit for current taxation period, and overall tax paid - Answers why was half year rule
started?
Undepreciated Capital Cost - Answers The remaining book value for an asset class, subject to
depreciation for taxation purposes.
true - Answers A UCC account tracks the undepreciated portion of the original capital cost for a
group of assets
Capital Tax Factor - Answers Converts annual tax savings into present worth tax savings. Hence
the present worth of the initial cost of an asset is less than its total purchase price
Capital Salvage Factor - Answers Converts annual tax savings from salvage or scrap into
present worth tax savings. Differs from CTF since the half rule isn't applied
true - Answers taxes are claimed at the end of the year, and at the end of an asset's life, any
money in excess of the book value is taxable income.
keep, overhaul, remove, replace - Answers options upon evaluating a long lived asset
replaced - Answers if there is a cheaper alternative or it's inadequate, the asset should
be_____________
retired - Answers if there is no demand for the service provided by the asset, or insufficient
profit is generated, asset should be___________________
mechanical deterioration, technological change, inadequacy to meet demands - Answers
reasons for retirement
Capital Costs - Answers incurred by the difference between initial and salvage costs (market
values
use-related physical loss, time-related physcial loss, functional loss - Answers reasons for
depreciation
market value - Answers estimated value an asset can be sold for in an open market (real value if
sold)
book value - Answers estimated value of an asset for accounting purposes
scrap value - Answers real or estimate value of an asset at the end of its physical life
salvage value - Answers real or estimated value of an asset at the end of its useful life
managerial decisions, planning decisions, taxes - Answers reasons for depreciation model
straight-line depreciation - Answers assumes rate of loss in value of an asset is uniform for all
periods of its useful life
declining-balance depreciation - Answers assumes rate of loss of current period is proportional
to the book value of previous period
Progressive tax rate - Answers percentage of taxable income increases with total income
true - Answers Taxable income equals total income minus deductions (i.e. tax credits)
Tax credits - Answers concern certain costs that are taxed at a reduced rate
corporate income taxes - Answers Flat tax rate regardless of profit, but proportional to size of
company
true - Answers Small business deductions can reduce tax rate
before-tax-MARR - Answers impact of taxes is implicitly taken into account, by setting a high
MARR
after-tax-MARR - Answers impact of taxes is explicitly taken into account, by setting a low
MARR
𝑀 𝐴 𝑅 𝑅 𝑎 𝑓 𝑡 𝑒 𝑟 −𝑡 𝑎 𝑥 ≅ 𝑀 𝐴 𝑅 𝑅 𝑏 𝑒 𝑓 𝑜 𝑟 𝑒 −𝑡 𝑎 𝑥 × (1 − 𝑡 ) - Answers after-tax
MARR equation
Before-Tax IRR - Answers calculated using before tax cash flows
After-Tax IRR - Answers calculated using after tax cash flows.
𝐼 𝑅 𝑅 𝑎 𝑓 𝑡 𝑒 𝑟 −𝑡 𝑎 𝑥 ≅ 𝐼 𝑅 𝑅 𝑏 𝑒 𝑓 𝑜 𝑟 𝑒 −𝑡 𝑎 𝑥 × (1 − 𝑡 ) - Answers after-tax-IRR
equation
, Capital expense - Answers occurs when a firm acquires a depreciable asset
true - Answers Depreciation is recorded as an expense, thus reduces net income and taxes
Capital Cost Allowance - Answers maximum level of capital expenses (depreciation) a firm can
claim
to monitor calculation method and limit depreciation claime - Answers Why was CCA system
created?
true - Answers use declining balance method to calculate CCA
Half Year Rule - Answers Only half of the capital cost of acquiring an asset can be claimed in the
UCC for the first year. The remaining half is claimed the following year.
to increase tax revenues since most companies would buy assets at the end of the fiscal year to
decrease profit for current taxation period, and overall tax paid - Answers why was half year rule
started?
Undepreciated Capital Cost - Answers The remaining book value for an asset class, subject to
depreciation for taxation purposes.
true - Answers A UCC account tracks the undepreciated portion of the original capital cost for a
group of assets
Capital Tax Factor - Answers Converts annual tax savings into present worth tax savings. Hence
the present worth of the initial cost of an asset is less than its total purchase price
Capital Salvage Factor - Answers Converts annual tax savings from salvage or scrap into
present worth tax savings. Differs from CTF since the half rule isn't applied
true - Answers taxes are claimed at the end of the year, and at the end of an asset's life, any
money in excess of the book value is taxable income.
keep, overhaul, remove, replace - Answers options upon evaluating a long lived asset
replaced - Answers if there is a cheaper alternative or it's inadequate, the asset should
be_____________
retired - Answers if there is no demand for the service provided by the asset, or insufficient
profit is generated, asset should be___________________
mechanical deterioration, technological change, inadequacy to meet demands - Answers
reasons for retirement
Capital Costs - Answers incurred by the difference between initial and salvage costs (market
values
