fina 5320 EXAM QUESTIONS AND VERIFIED
ACCURATE SOLUTION |GET IT 100% ACCURATE!!!
What is the depreciation tax shield if EBIT is $600, depreciation is $1,800 and the tax rate is 30 percent?
- ANSWER-$540
Firms usually maintain two sets of books, one for the IRS and the other for the purposes of generating
financial statements according to the ___________. - ANSWER-FASB
Interest expenses incurred on debt financing are ______ when computing cash flows from a project. -
ANSWER-Ignored
An increase in depreciation expense will ______ cash flows from operations. - ANSWER-Increase
Interest on municipal bonds is ______. - ANSWER-Ignored for tax purposes but included as income for
FASB accounting.
The equivalent annual cost method for deciding between two machines applies only if ____. - ANSWER-
Both machines will be replaced
Real interest rate - ANSWER-(1+ Nominal Interest Rate/1 + inflation rate) - 1
If the inflation rate increases, the nominal rate of interest ill ______. - ANSWER-Increase
According to the bottom-up approach, what is the OCF if EBIT is $600, depreciation is $1,800, and the
tax rate is 30%? - ANSWER-$2,220
OCF - ANSWER-= EBIT -taxes + depreciation or EBIT (1-t) + depreciation
True or False: NPV will be the same regardless of whether nominal or real cash flows are used. -
ANSWER-True
, According to the top-down approach, what is the operating cash flow if sales are $200,000 total cash
costs are $190,636, and the tax bill is 1144. - ANSWER-$8220
If the tax rate increases, the value of the depreciation tax shield will ____. - ANSWER-Increase
How does depreciation affect the operating cash flows? - ANSWER-Depreciation expense reduces the
taxable income and taxes, and increases the operating cash flow.
What correctly describes the relationship between depreciation, income, taxes, and investment cash
flows? - ANSWER-As depreciation expense increases, net income and taxes will decrease, while
investment cash flows will increase.
Equation for using tax shield approach - ANSWER-OCF = (Sales - Costs) * (1-t) + Depreciation * TaxRate
Which of the following institutions issues bonds that are traded in the bond market? - ANSWER-State
governments, public corporations, and the federal government
Which of the following terms apply to a bond? - ANSWER-Time to maturity, coupon rate, par value
What is the value of a zero coupon bond that matures in 15 years if it promises to pay $5000 at
maturity, assuming an interest rate of 7.5% compounded annually? - ANSWER-1689.83=
$5000/(1.075)^15
What is the coupon rate on a bond that has a par value of $1000, a market value of $1100 and a coupon
interest payment of $100 per year? - ANSWER-Coupon Rate=$100/$1000=10%
What is a real rate of return? - ANSWER-It is a rate of return that has been adjusted for inflation, and is a
percentage change in buying power.
What is the definition of a bonds time to maturity? - ANSWER-It is the number of years until the face
value is paid off.
ACCURATE SOLUTION |GET IT 100% ACCURATE!!!
What is the depreciation tax shield if EBIT is $600, depreciation is $1,800 and the tax rate is 30 percent?
- ANSWER-$540
Firms usually maintain two sets of books, one for the IRS and the other for the purposes of generating
financial statements according to the ___________. - ANSWER-FASB
Interest expenses incurred on debt financing are ______ when computing cash flows from a project. -
ANSWER-Ignored
An increase in depreciation expense will ______ cash flows from operations. - ANSWER-Increase
Interest on municipal bonds is ______. - ANSWER-Ignored for tax purposes but included as income for
FASB accounting.
The equivalent annual cost method for deciding between two machines applies only if ____. - ANSWER-
Both machines will be replaced
Real interest rate - ANSWER-(1+ Nominal Interest Rate/1 + inflation rate) - 1
If the inflation rate increases, the nominal rate of interest ill ______. - ANSWER-Increase
According to the bottom-up approach, what is the OCF if EBIT is $600, depreciation is $1,800, and the
tax rate is 30%? - ANSWER-$2,220
OCF - ANSWER-= EBIT -taxes + depreciation or EBIT (1-t) + depreciation
True or False: NPV will be the same regardless of whether nominal or real cash flows are used. -
ANSWER-True
, According to the top-down approach, what is the operating cash flow if sales are $200,000 total cash
costs are $190,636, and the tax bill is 1144. - ANSWER-$8220
If the tax rate increases, the value of the depreciation tax shield will ____. - ANSWER-Increase
How does depreciation affect the operating cash flows? - ANSWER-Depreciation expense reduces the
taxable income and taxes, and increases the operating cash flow.
What correctly describes the relationship between depreciation, income, taxes, and investment cash
flows? - ANSWER-As depreciation expense increases, net income and taxes will decrease, while
investment cash flows will increase.
Equation for using tax shield approach - ANSWER-OCF = (Sales - Costs) * (1-t) + Depreciation * TaxRate
Which of the following institutions issues bonds that are traded in the bond market? - ANSWER-State
governments, public corporations, and the federal government
Which of the following terms apply to a bond? - ANSWER-Time to maturity, coupon rate, par value
What is the value of a zero coupon bond that matures in 15 years if it promises to pay $5000 at
maturity, assuming an interest rate of 7.5% compounded annually? - ANSWER-1689.83=
$5000/(1.075)^15
What is the coupon rate on a bond that has a par value of $1000, a market value of $1100 and a coupon
interest payment of $100 per year? - ANSWER-Coupon Rate=$100/$1000=10%
What is a real rate of return? - ANSWER-It is a rate of return that has been adjusted for inflation, and is a
percentage change in buying power.
What is the definition of a bonds time to maturity? - ANSWER-It is the number of years until the face
value is paid off.
