C214 Chapt 11 Review: capital
Budgeting Question and answers
rated A+ 2026
The total cost of a new machine including the shipping and the installation was $250,000. Using the 3-
year MACRS schedule, determine the depreciation expense in year 2. The factors for the three-years
schedule are: year 1 = 33.33%, year 2 = 44.45%, year 3 = 14.81%, and year 4 = 7.41% - correct answer
✔Answer: $111,125
Using the tables, depreciation for each year is calculated as: Depr.expense = factori x cost. Hence, for
year 2 depreciation expense = .4445 x $250,000 = $111,125.
Which one of the following should be included in the capital budgeting calculation? - correct answer
✔The cost of scraping an old machine to replace with a new machine.
Suppose an asset that cost $250,000 is depreciated straight-line over 7 years. The salvage value is
assessed as $5,000. What is the depreciation expense in Year 3? - correct answer ✔Answer: $35,000
Depreciation Expense = (250000 - 5000) / 7 = $35,000
Straight-line: Expense = (Cost − Salvage) / Life
initial outlay - correct answer ✔Start up or acquisition cost of the project. Assumed to arrive at time
zero (today).
differential cash flow - correct answer ✔Cash flow associated with using the asset each year during
the life of the project. All cash flows occurring during a year are attributable to the end of the year.
terminal cash flow - correct answer ✔Cash flow associated with "unwinding" the project at the end of
its useful life. It does NOT include the differential cash flow from the final year of operations. In the
Budgeting Question and answers
rated A+ 2026
The total cost of a new machine including the shipping and the installation was $250,000. Using the 3-
year MACRS schedule, determine the depreciation expense in year 2. The factors for the three-years
schedule are: year 1 = 33.33%, year 2 = 44.45%, year 3 = 14.81%, and year 4 = 7.41% - correct answer
✔Answer: $111,125
Using the tables, depreciation for each year is calculated as: Depr.expense = factori x cost. Hence, for
year 2 depreciation expense = .4445 x $250,000 = $111,125.
Which one of the following should be included in the capital budgeting calculation? - correct answer
✔The cost of scraping an old machine to replace with a new machine.
Suppose an asset that cost $250,000 is depreciated straight-line over 7 years. The salvage value is
assessed as $5,000. What is the depreciation expense in Year 3? - correct answer ✔Answer: $35,000
Depreciation Expense = (250000 - 5000) / 7 = $35,000
Straight-line: Expense = (Cost − Salvage) / Life
initial outlay - correct answer ✔Start up or acquisition cost of the project. Assumed to arrive at time
zero (today).
differential cash flow - correct answer ✔Cash flow associated with using the asset each year during
the life of the project. All cash flows occurring during a year are attributable to the end of the year.
terminal cash flow - correct answer ✔Cash flow associated with "unwinding" the project at the end of
its useful life. It does NOT include the differential cash flow from the final year of operations. In the
