Question 1: Timber Limited is looking at buying a new machine. The company has two payment options. They can either pay a fixed amount every year for 5 years or make an upfront payment of $14,000. If current interest rates are 10%, what is the fixed payment each year (to the nearest $100), at which the company would be indifferent between making the upfront payment and paying the fixed amount each year.
(a) 3,400
(b) 3,700
(c) 4,200
(d) 4,800
Question 2: In 2009, TYX Limited expects to generate $40,000 of revenue from 1,000 unit of sales. The current variable cost per unit is 40% of the sale price and fixed costs are $12,000. What is the break-even point?
(a) 100 units
(b) 300 units
(c) 350 units
(d) 500 units
The information below is for questions 3, 4 and 5:
Fulti Lines Limited has just purchased a machine for $35,000 at the beginning of 2005. The machine has a useful life of 5 years and a salvage value of $10,000. It is depreciated using straight-line depreciation.
During the year the company generated $15,000 in revenue and operating expense of $8,500 (excluding depreciation). Also, during the year some property with a book value of $20,000 was sold for $25,000. The company also increased its working capital by $8500. The tax rate is 30%.
Question 3: What is the cash flow relating to depreciation?
(a) Outflow of $10,000
(b) Inflow of $5,000
(c) Outflow of $5,000
(d) Inflow of $1,500
Question 4: What is the total cash flow from the sale of the property?
(a) Inflow of $25,000
(b) Inflow of $20,000
(c) Inflow of $17,500
(d) Inflow of $23,500
Question 5: What is the total cash flow during the year?
(a) Inflow of $31,544
(b) Outflow of $31,502
(c) Inflow of $19,996
(d) Inflow of 6,568
Question 6: The payback period is the length of time required for:
(a) The accounting profit to equal the initial capital outlay
(b) A stream of cash inflows to equal the cash outflows on the project
(c) Cash revenue from project to equal intial capital outlay
(d) The total cash flow to equal the total profit
Question 7: The most likely cause of high receivables turnover is:
(a) An extension of credit to its customers
(b) An increase in sales
(c) The reduction in credit sales and increase in cash sales
(d) An increase in the firms collection from its credit customers
Question 8: The lower the expected rate of return, the
(a) Higher the present value of a stream of cash flows
(b) Higher the future value of a stream of cash flows
(c) The higher the internal rate of return
(d) The more likely the NPV will be negative
Question 9: Should management ignore a significant favourable variable?
(a) Yes. A favourable variance represents a positive result
(b) No. Because it may have caused a significantly unfavourable variance with another department
(c) No. It might be the result of budgetary slack
(d) (b) and (c)
Question 10: Which of the following events is most likely to decrease the operating cash cycle:
(a) You relax the time payable for credit sales from 30 days to 90 days
(b) Your suppliers stop allowing you to pay on credit and only accept cash sales
(c) You provide customers a discount for prompt payment
(d) The time it takes to manufacture your product increases from 10
days to 20 days
Question 11: A company forecasted sales of 5,000 units at an average sales price of $32, variable costs per unit of $12 and fixed costs of
$50,000. However the company actually achieved sales of 6000 units and variable costs of 84,000 and fixed costs of 55,000. What was the flexed individual variance for variable costs.
(a) $12,000 favourable
(b) $12,000 adverse
(c) $24,000 favourable
(d) $24,000 adverse
Question 12. Which of the following is a strength of raising capital through equity:
(a) It dilutes control
(b) It is cheaper then equity
(c) It has a lower cost of capital
(d) Dividends are not obligatory