公司理财精要第九章题库(2)

Chapter 09 - Making Capital Investment Decisions

20. The Corner Market has decided to expand its retail store by building on a vacant lot it

currently owns. This lot was purchased four years ago at a cost of $299,000, which the firm paid in cash. To date, the firm has spent another $38,000 on land improvements, all of which was also paid in cash. Today, the lot has a market value of $329,000. What value should be included in the analysis of the expansion project for the cost of the land?

A. The sum of the cash paid to date for both the lot and the improvements B. The original purchase price only

C. The current market value of the land plus the cash paid for the improvements D. The current market value of the land

E. Zero because the land and the improvements were purchased with cash

21. Weston Steel purchased a new coal furnace six years ago at a cost of $2.2 million. Last year, the government changed the emission requirements and this furnace cannot meet those standards. Thus, Weston's can no longer use the furnace nor have they been able to locate anyone willing to purchase the furnace. Given the current situation, the furnace is best described as which type of cost? A. Erosion B. Book C. Sunk D. Market E. Opportunity

22. Valley Forge and Metal purchased a truck five years ago for local deliveries. Which one of the following costs related to this truck is the best example of a sunk cost? Assume the truck has a usable life of eight years.

A. New tires that will be purchased this winter

B. Costs of repairs needed so the truck can pass inspection next month C. Money spent last month repairing a damaged front fender D. Engine tune-up that is scheduled for this afternoon

E. Cost for a truck driver for the remainder of the truck's useful life

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Chapter 09 - Making Capital Investment Decisions

23. The managers of H.R Construction are considering remodeling plans for an old building the firm currently owns. The building was purchased 8 years ago for $689,000. Over the past 8 years, the firm rented out the building and used the rent to pay off the mortgage. The building is now owned free and clear and has a current market value of $898,000. The firm is considering remodeling the building into a conference centre and sandwich bar at an estimated cost of $1.7 million. The estimated present value of the future income from this centre is $2.9 million. Which one of the following defines the opportunity cost of the remodeling project? A. Initial cost of the building B. Cost of the remodeling

C. Current market value of the building

D. Initial cost of the building plus the remodeling costs

E. Current market value of the building plus the remodeling costs

24. Bruce Moneybags owns several restaurants and hotels near a local interstate. One restaurant, Beef and More, needs modernized. He is trying to decide whether to accept an offer and sell Beef and More as is for the offer price of $1.1 million or renovate the restaurant himself. The projected renovation cost is $1.3 million. The restaurant would need to be shut down

completely during the renovation which would cause a net operating cash flow loss of $210,000 in today's dollars. The estimated present value of the cash inflows from the renovated restaurant are $3.2 million. When analyzing the renovation project, what opportunity cost, if any should be included for the current restaurant? Assume the restaurant is totally paid for and any future costs will be paid in cash.

A. There is no opportunity cost since the current restaurant is owned free and clear. B. The opportunity cost is the value of the current offer to buy the restaurant. C. The opportunity cost is the cost of the needed improvements.

D. The opportunity cost is the present value of the loss of operating cash flows while the restaurant is closed for renovation.

E. The opportunity cost is the cost of the renovations plus the loss of the operating cash flows during the renovation.

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Chapter 09 - Making Capital Investment Decisions

25. Isabella is considering three mutually exclusive options for the additional space she just added to her specialty women's store. The cost of the expansion was $127,000. She can use this additional space to add a fabric and quilting section, add an exclusive gifts department, or expand into imported decorator items for the home. She estimates the present value of these options at $114,000 for fabric and quilting, $163,000 for exclusive gifts, and $138,000 for decorator items. Which option(s), if any, should Isabella accept? A. None of the options B. Fabric and quilting only C. Exclusive gifts only

D. Exclusive gifts and decorator items only E. All three options

26. Steve owns a store that caters primarily to men and their hobbies. He is contemplating greatly expanding the hunting and fishing section of the store. If he does this, he expects his fishing and hunting sales will increase, his camping gear sales will increase, and his model train sales will decrease. Which of the following should Steve include in his revenue projection for the expansion project?

I. increase in fishing and hunting sales II. increase in camping gear sales III. decrease in model train sales A. I only B. II only

C. I and III only D. II and III only E. I, II, and III

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Chapter 09 - Making Capital Investment Decisions

27. Lakeside Rides is adding a new roller coaster to its amusement park. The firm expects this addition to increase its overall ticket sales and increase attendance at its park. In particular, the firm expects to sell more tickets for its current roller coaster and experience extremely high demand for its new coaster. Sales for its boat ride are expected to decline but food and beverage sales are expected to increase significantly. Which of the following are considered side effects associated with the new roller coaster? I. ticket sales for the new roller coaster

II. change in ticket sales for the existing coaster III. change in ticket sales for the boat ride IV. change in food and beverage sales A. I only B. III only

C. II and III only D. I, II, and III only E. II, III, and IV only

28. Which of the following should be included in the analysis of a proposed investment? I. erosion effects II. opportunity costs III. sunk costs IV. side effects A. I only B. II only

C. I and IV only D. I, II, and IV only E. I, II, III, and IV

29. The net working capital invested in a project is generally: A. a sunk cost.

B. an opportunity cost.

C. recouped in the first year of the project. D. recouped at the end of the project.

E. depreciated to a zero balance over the life of the project.

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Chapter 09 - Making Capital Investment Decisions

30. A proposed project will increase a firm's accounts payables. This increase is generally: A. treated as an erosion cost. B. treated as an opportunity cost. C. a sunk cost and should be ignored.

D. a cash outflow at time zero and a cash inflow at the end of the project. E. a cash inflow at time zero and a cash outflow at the end of the project.

31. Which of the following are cash inflows from net working capital? I. increase in accounts payable II. increase in inventory

III. decrease in accounts receivable IV. decrease in fixed assets A. II only B. III only

C. I and III only D. III and IV only E. I, II, and III only

32. Which of the following should be included when compiling pro forma statements for a proposed investment? I. forecasted sales II. start-up costs

III. aftertax salvage value of any assets sold IV. anticipated changes in net working capital A. I only

B. II and IV only C. I, II, and III only D. II, III, and IV only E. I, II, III, and IV

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