PRACTICE QUESTIONS:Question 1A project generates a revenue of $100.00 today for a service to be performed one year from today at a cost of $110.00. Which discount rate will make the NPV greater than zero? a.8% APR b.11% APR c.9% APR d.10% APR

Question 2A project has the following cash flows:

0123($500)$100$200$250What is the project’s NPV if the interest rate is $6%? a.$22.44 b.($537.78) c.($17.76) d.$482.24 Question 3A project requires an initial outlay of $100,000, and is expected to generate annual net cash inflows of $28,000 for the next 5 years. Determine the payback period for the project. a.0.28 years b.3.57 years c.17.86 years d.1.4 years Question 4An outlay of $180,000 is expected to yield the following cash flows:Year Net Cash Flow

1 75,000

2 55,000

3 60,000

4 25,000

5 15,000

6 10,000The cost of capital is 12 percent. What is the payback period? a.3 years b.2.5 years c.2 5/6 years d.3 1/3 years Question 5An investment project requires an outlay of $100,000, and is expected to generate annual cash inflows of $28,000 for the next 5 years. The cost of capital is 12 percent. Determine a net present value for the project. a.$77,884 b.$100,940 c.$40,000 d.$940 Question 6Capital Foods purchased an oven 5 years ago for $45,000. The oven is being depreciated over its estimated 10-year life using the straight line method to a salvage value of $5,000. Capital is planning to replace the oven with a more automated one that will cost $150,000 installed. If the old oven can be sold for $30,000, what is the tax liability? Assume a marginal tax rate of 40 percent. a.$900 b.$2,000 c.$127,000 d.None of the above Question 7Felix Industries purchased a grinder 5 years ago for $15,000. It is being depreciated on a straight-line basis over 15 years to an estimated salvage value of zero. It could be sold now for $6,000. The firm is considering selling it and purchasing a new one. The new grinder would cost $25,000 installed and would be depreciated on a straight-line basis over 10 years to a zero estimated salvage value. The company’s marginal tax rate is 40%. Determine the net investment if the old grinder is sold and the new one purchased. a.$19,000 b.$16,600 c.$17,400 d.None of the above/cannot be computed Question 8Jim Bo’s currently has annual cash revenues of $240,000 and annual operating expenses of $185,000 including $35,000 in depreciation. The firm’s marginal tax rate is 40 percent. A new cutting machine can be purchased for $120,000 that will increase revenues by $50,000 per year while operating expenses would increase to $205,000, including $42,000 in depreciation. Compute Jim Bo’s annual incremental after-tax net cash flows. a.$19,000 b.$20,800 c.$93,000 d.$25,000 Question 9LISP Inc. is planning to purchase a new mixer/dubber for $50,000. The new equipment will replace an older mixer that has been fully depreciated but has a salvage value of $5,000. Compute the net investment required for this project. Assume a marginal tax rate of 40 percent. a.$47,000 b.$45,000 c.$48,000 d.None of the above Question 10An asset originally cost $630,000 and will be depreciated straight-line over seven years. It will be used for a five year project at which time the asset will be sold for $221,000. What is the after tax cash flow from the sale of the asset if the tax rate is 34%? a.$14,000 b.$13,940 c.$207,060 d.$221,000

## Describe why the traditional line-item budgeting is the best for…

Describe why the traditional line-item budgeting is the best for local governments and explain why?