CONCEPTUAL CH #10 EXAM
QUESTIONS AND ANSWERS
Which one of the following best describes pro forma financial statements?
A. financial statements expressed in a foreign currency
B. financial statements where the assets are expressed as a percentage of total
assets and costs are expressed as a percentage of sales
C. financial statements showing projected values for future time periods
D. financial statements expressed in real dollars, given a stated base year
E. financial statements where all accounts are expressed as a percentage of last
year's values - ANSWER-C. financial statements showing projected values for future
time periods
Which one of the following is the depreciation method which allows accelerated
write-offs of property under various lifetime classifications?
A. IRR
B. ACRS
C. AAR
D. straight-line to zero
E. straight-line with salvage - ANSWER-B. ACRS
The depreciation tax shield is best defined as the:
A. amount of tax that is saved when an asset is purchased.
B. tax that is avoided when an asset is sold as salvage.
C. amount of tax that is due when an asset is sold.
D. amount of tax that is saved because of the depreciation expense.
E. amount by which the aftertax depreciation expense lowers net income. -
ANSWER-D. amount of tax that is saved because of the depreciation expense.
The annual annuity stream of payments that has the same present value as a
project's costs is referred to as which one of the following?
, A. yearly incremental costs
B. sunk costs
C. opportunity costs
D. erosion cost
E. equivalent annual cost - ANSWER-E. equivalent annual cost
Kelley's Baskets makes handmade baskets for distribution to upscale retail outlets.
The firm is currently considering making handmade wreaths as well. Which one of
the following is the best example of an incremental operating cash flow related to the
wreath project?
A. storing supplies in the same space currently used for materials storage
B. utilizing the basket manager to oversee wreath production
C. hiring additional employees to handle the increased workload should the firm
accept the wreath project
D. researching the market to determine if wreath sales might be profitable before
deciding to proceed
E. planning on lower interest expense by assuming the proceeds of the wreath sales
will be used to reduce the firm's currently outstanding debt - ANSWER-C. hiring
additional employees to handle the increased workload should the firm accept the
wreath project
Danielle's is a furniture store that is considering adding appliances to its offerings.
Which of the following should be considered incremental cash flows of this project?
I. utilizing the credit offered by a supplier to purchase the appliance inventory
II. benefiting from increased furniture sales to appliance customers
III. borrowing money from a bank to fund the appliance project
IV. purchasing parts for inventory to handle any appliance repairs that might be
necessary
A. I and II only
B. III and IV only
C. I, II, and IV only
D. II, III, and IV only
QUESTIONS AND ANSWERS
Which one of the following best describes pro forma financial statements?
A. financial statements expressed in a foreign currency
B. financial statements where the assets are expressed as a percentage of total
assets and costs are expressed as a percentage of sales
C. financial statements showing projected values for future time periods
D. financial statements expressed in real dollars, given a stated base year
E. financial statements where all accounts are expressed as a percentage of last
year's values - ANSWER-C. financial statements showing projected values for future
time periods
Which one of the following is the depreciation method which allows accelerated
write-offs of property under various lifetime classifications?
A. IRR
B. ACRS
C. AAR
D. straight-line to zero
E. straight-line with salvage - ANSWER-B. ACRS
The depreciation tax shield is best defined as the:
A. amount of tax that is saved when an asset is purchased.
B. tax that is avoided when an asset is sold as salvage.
C. amount of tax that is due when an asset is sold.
D. amount of tax that is saved because of the depreciation expense.
E. amount by which the aftertax depreciation expense lowers net income. -
ANSWER-D. amount of tax that is saved because of the depreciation expense.
The annual annuity stream of payments that has the same present value as a
project's costs is referred to as which one of the following?
, A. yearly incremental costs
B. sunk costs
C. opportunity costs
D. erosion cost
E. equivalent annual cost - ANSWER-E. equivalent annual cost
Kelley's Baskets makes handmade baskets for distribution to upscale retail outlets.
The firm is currently considering making handmade wreaths as well. Which one of
the following is the best example of an incremental operating cash flow related to the
wreath project?
A. storing supplies in the same space currently used for materials storage
B. utilizing the basket manager to oversee wreath production
C. hiring additional employees to handle the increased workload should the firm
accept the wreath project
D. researching the market to determine if wreath sales might be profitable before
deciding to proceed
E. planning on lower interest expense by assuming the proceeds of the wreath sales
will be used to reduce the firm's currently outstanding debt - ANSWER-C. hiring
additional employees to handle the increased workload should the firm accept the
wreath project
Danielle's is a furniture store that is considering adding appliances to its offerings.
Which of the following should be considered incremental cash flows of this project?
I. utilizing the credit offered by a supplier to purchase the appliance inventory
II. benefiting from increased furniture sales to appliance customers
III. borrowing money from a bank to fund the appliance project
IV. purchasing parts for inventory to handle any appliance repairs that might be
necessary
A. I and II only
B. III and IV only
C. I, II, and IV only
D. II, III, and IV only
