Complicates the analysis in capital budgeting


Question 1:  ________ is (are) a factor which complicates the analysis in capital budgeting.

a)Income taxes
b)Inflation
c)Mutually exclusive projects
d)All of these answers are correct.

Question 2: An asset with a book value of $50,000 is sold at a loss (before taxes are considered) of $20,000. The applicable tax rate is 40%. ________ is the tax effect of the loss.

a)$8,000 cash inflow
b)$8,000 cash outflow
c)$16,000 cash inflow
d)$28,000 cash inflow

Question 3: The marginal tax rate is:

a)the average rate for the company
b)the highest possible rate the company might be expected to pay
c)the lowest tax rate applicable to the company
d)the rate paid on additional amounts of pre-tax income

Question 4: When evaluated using a nominal rate of 8%, the net present value of a project is zero. Identify which one of the following statements is true.

a)At 6% the project is desirable and at 8% it is undesirable.
b)At 8% the project is desirable and at 6% it is undesirable.
c)The project is desirable at 6% or 8%.
d)The project is undesirable at 6% or 8%.

Question 5: A company pays taxes of 25% on their first $25,000 of pre-tax income, and 35% on any taxable income in excess of $25,000. The marginal tax rate, if current pre-tax income is $30,000, is:

a)25%
b)30%
c)35%
d)None of these answers is correct

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Finance Basics: Complicates the analysis in capital budgeting
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