CH 9 Practice Problems

Question 1

GreenGrocer Market

1) The cost of the land when it was originally purchased.
2) The current market value of the land if sold instead of being used for the new store.
3) The expenses involved in clearing the community garden and preparing the land.
4) Loss of sales at their other stores in the region due to customers shifting to the new store.
5) The $40,000 spent on the community response study.
6) The overall operating costs of GreenGrocer Market at the new location.
7) The construction and initial stocking costs for the new grocery store.

Answer 1

2) The current market value of the land if sold instead of being used for the new store.

3) The expenses involved in clearing the community garden and preparing the land.

4) Loss of sales at their other stores in the region due to customers shifting to the new store.

6) The overall operating costs of GreenGrocer Market at the new location.

7) The construction and initial stocking costs for the new grocery store.

Question 2

Healix

1) The cost of market research done last year.
2) The purchase price for the new equipment.
3) The cost for the production technology purchased 5 years ago.
4) The increase in the inventory cost.
5) The overhead cost.
6) The potential profit form the alternative project.
7) Annual sales and cost of goods sold from the project.

Answer 2

2) The purchase price for the new equipment.

4) The increase in the inventory cost.

6) The potential profit form the alternative project.

7) Annual sales and cost of goods sold from the project.

Question 3

Annual Free Cash Flows

Net Income $4,500,000.00
Depreciation $2,800,000.00
Capital Expenditure $2,300,000.00
Changes in Working Capital $(1,500,000.00)

A) $2.4 million
B) $6.5 million
C) $8.1 million
D) $11.1 million

Answer 3

B) $6.5 million

Question 4

Annual Free Cash Flows

Net Income $5,200,000.00
Depreciation $3,600,000.00
Capital Expenditure $3,000,000.00
Changes in Working Capital $2,000,000.00

A) $3.8 million
B) $7.8 million
C) $8.8 million
D) $12.4 million

Answer 4

A) $3.8 million

Question 5

Annual Free Cash Flows

Net Income $(6,000,000.00)
Depreciation $4,000,000.00
Capital Expenditure $3,500,000.00
Changes in Working Capital $(1,200,000.00)

A) $7.7 million
B) -$4.3 million
C) $10.5 million
D) -$9.3 million

Answer 5

B) -$4.3 million

Question 6

Cromwell Industries

A) -278,832
B) -$153,046
C) $170,676
D) $300,691

Answer 6

C) $170,676

Question 7

BrightPath Technologies

A) -278,832.33
B) -$153,046.50
C) $170,676.50
D) $78,963

Answer 7

D) $78,963

Question 8

Adding a Microbrewery

Changes in Inventory $8,000.00
Changes in Acc. Receivables $0
Changes in Acc. Payables $2,500.00

A) $45,500
B) $10,500
C) $6,500
D) $5,500

Answer 8

D) $5,500

Question 9

Expand its Boutique Hotel Chain

Changes in Inventory $12,000.00
Changes in Acc. Receivables $3,500.00
Changes in Acc. Payables $0

A) $8,500
B) $15,500
C) $9,500
D) $65,500

Answer 9

B) $15,500

Question 10

Retail Store Discounting Its Product Lines

Changes in Inventory $(20,000.00)
Changes in Acc. Receivables $(7,000.00)
Changes in Acc. Payables $(5,500.00)

A) $8,500
B) -$15,500
C) -$21,500
D) $68,500

Answer 10

C) -$21,500

Question 11

Sushi Bar

Initial Cost $40,000.00
Salvage Value $0
Years in Useful Life 5
Annual Depreciation $8,000.00

Tax (%) 35%

A) $2,800
B) $5,500
C) $7,800
D) $9,500

Answer 11

A) $2,800

Question 12

New Coffee Shop

Initial Cost $500,000.00
Salvage Value $0
Years in Useful Life 10
Annual Depreciation $50,000.00

Tax (%) 30%

A) $1,500
B) $15,000
C) $5,000
D) $3,000

Answer 12

B) $15,000

Question 13

Adding New Gym Equipment

Initial Cost $60,000.00
MACRS (%) for Year 2 32%
MACRS Depreciation $19,200.00

Tax (%) 25%

A) $2,500
B) $10,000
C) $4,800
D) $15,000

Answer 13

C) $4,800

Question 14

New Kitchen Equipment

Initial Cost $500,000.00
MACRS (%) for Year 1 33%
MACRS Depreciation $166,500.00

Tax (%) 30%

A) $7,500
B) $50,000
C) $4,800
D) $49,950

Answer 14

D) $49,950