Problem 1: ________ is an expense that is a legal obligation of the firm.
1. Labor expense
2. Interest expense
3. Salaries expense
4. Rent expense
Problem 2: Under MACRS, an asset which originally cost $10,000 is being depreciated using a 5-year normal recovery period. What is the depreciation expense in year 3?
1. $1,200
2. $1,900
3. $2,100
4. $1,500
Problem 3: Which of the following is a source of cash flows?
1. Depreciation.
2. Taxes.
3. Cost of goods sold.
4. Interest expense.
Problem 4: A firm's operating cash flow is defined as
1. EBIT + depreciation.
2. gross profit minus operating expenses.
3. gross profit minus depreciation.
4. EBIT - taxes + depreciation.
Problem 5: $100 is received at the beginning of year 1, $200 is received at the beginning of year 2, and $300 is received at the beginning of year 3. If these cash flows are deposited at 12 percent, their combined future value at the end of year 3 is ________.
1. $1,245
2. $ 727
3. $1,536
4. $ 672