A firm is trying to determine whether to replace an existing asset. The proposed asset has a purchase

A firm is trying to determine whether to replace an existing asset. The proposed asset has a purchase price of $50,000 and has installation costs of $3,000. The asset will be depreciated over its five year life using the straight-line method. 

The new asset is expected to increase sales by $17,000 and non-depreciation expenses by $2,000 annually over the life of the asset. Due to the increase in sales, the firm expects an increase in working capital during the asset's life of $1,500, and the firm expects to be able to sell the asset for $6,000 at the end of its life. 

The existing asset was originally purchased three years ago for $25,000, has a remaining life of five years, and is being depreciated using the straight-line method. The expected salvage value at the end of the asset's life (i.e., five years from now) is $5,000; however, the current sale price of the existing asset is $20,000, and its current book value is $15,625. 

The firm's marginal tax rate is 34 percent and its required rate of return is 12 percent.

If the new machine is purchased, depreciation expense will increase or decrease by

A) increase $8,000.

B) increase $6,900.

C) increase $6,300.

D) decrease $5,000.

Increased taxes on the sale of the old machine are

A) $1,487.50.

B) $2,500.50.

C) $3,823.50.

D) $4,312.50.

If the new machine is purchased, operating cash flow for years 1 through 5 will increase or decrease by how much?

A) Increase $15,000

B) Decrease $9,900

C) Increase $12,142

D) Increase $5,346

What would cause the initial cash outlay of an investment decision to be affected by the sale of an existing asset?

A) If the investment decision is a replacement decision

B) If the asset being purchased is technologically superior

C) If the asset being sold has exceeded its MACR's recovery allowance period

D) All of the above

Corbin, Inc. had net income of $150,000 on sales of $5,000,000 during 1995. In addition, the firm's total assets were $2,500,000,

Corbin, Inc. had net income of $150,000 on sales of $5,000,000 during 1995. In addition, the firm's total assets were $2,500,000, and its capital structure is comprised of 40% debt and 60% equity. What was Corbin's return on equity in 1995?

A) 15%

B) 2.5%

C) 10%

D) Return on equity cannot be determined with the information provided.

Which of the following ratios would be the most useful in evaluating the ability of a firm to meet its short-term obligations?

A) The quick ratio (acid test)

B) Return on equity

C) Total asset turnover

D) Operating profit margin

If Challenge Corporation has sales of $2 million per year (all credit) and an average collection period of 35 days, what is its average amount of accounts receivable?

A) $191,781

B) $57,143

C) $5,556

D) $97,222

Which of the following financial ratios is the best measure of how effectively a firm's management is serving its stockholders?

A) Current ratio

B) Debt ratio

C) ACP

D) Return on equity

Colton Corp. has current assets of $4.5 million. The current ratio is 1.25 and the quick ratio is 0.75. What is the amount of Colton's current liabilities (in millions)?

A) $4.5

B) $1.8

C) $2.4

D) $2.9

E) $3.6

Consolidated Industries has total interest charges of $20,000 per year. Sales of $2 million generated an operating income of $220,000 and an after-tax profit of 6% of sales. The firm has a marginal tax rate of 40%. What is the firm's times-interest-earned ratio?

A) 10

B) 11

C) 12

D) 13

A & K Co. expects to have earnings before taxes of $250,000 to $300,000. The company's marginal tax rate is 39%

A & K Co. expects to have earnings before taxes of $250,000 to $300,000.  The company's marginal tax rate is 39% and its average tax rate about 33%.  For every additional dollar A & K pays out in common dividends, its income tax liability will

A) increase by 39 cents.

B) fall by 39 cents.

C) be unaffected.

D) fall by about 33 cents.

Tax tables are based on ________ tax rates.

A) marginal

B) average

C) implied

D) investment

The marginal tax rate would equal the average tax rate for firms with earnings less than $50,000 or more than $18,333,333.

Answer:  TRUE

The interest payments on corporate bonds are tax-deductible.

Answer:  TRUE

A corporation's average tax rate will always be lower than or equal to its marginal tax rate.

Answer:  TRUE

The highest marginal corporate tax rate is 35%.

Answer:  FALSE

When analyzing the cash flows from a new project proposal, a company should always use its marginal tax rate.

Answer:  TRUE