Reference no: EM133059192
Questions -
Q1. Winneconne Company is considering replacing a machine with a book value of P400,000, a remaining useful life of 5 years, and annual straight-line depreciation of P80,000. The existing machine has a current market value of P400,000. The replacement machine would cost P550,000, have a 5-year life, and save P75,000 per year in cash operating costs. If the replacement machine would be depreciated using the straight-line method, the tax rate is 30%, inventory shall increase by P10,000, payables by P5,000, what would be the net investment required to replace the existing machine?
A. P165,000
B. P155,000
C. P90,000
D. P150,000
E. P160,000
Q2) Which of the following statements is CORRECT?
A. One defect of the IRR method is that it does not take account of the time value of money.
B. One defect of the IRR method is that it values a dollar received today the same as a dollar that will not be received until sometime in the future.
C. One defect of the IRR method is that it does not take account of the cost of capital.
D. One defect of the IRR method is that it does not take account of cash flows over a project's full life.
E. One defect of the IRR method is that it assumes that the cash flows to be received from a project can be reinvested at the IRR itself, and that assumption is often not valid.
Q3) Assume a project has normal cash flows. All else equal, which of the following statements is CORRECT?
A. A project's discounted payback increases as the WACC declines.
B. A project's NPV increases as the WACC declines.
C. A project's regular payback increases as the WACC declines.
D. A project's MIRR is unaffected by changes in the WACC.
E. A project's IRR increases as the WACC declines.
Q4) Normal projects C and D are mutually exclusive. Project C has a higher net present value if the WACC is less than 12 percent, whereas Project D has a higher net present value if the WACC exceeds 12 percent. Which of the following statements is most correct?
A. All of the statements above are correct
B. Project C probably has a faster payback.
C. Project D has a higher internal rate of return.
D. Project D is probably larger in scale than Project C.
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