FIN 370T Wk 5 – Apply: Homework

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FIN 370T Wk 5 – Apply: Homework

A new project would require an immediate increase in raw materials in the amount of $1,000. The firm expects that accounts payable will automatically increase $800. How much must the firm expect its investment in net working capital to change if they accept this project?

Multiple Choice

•      −$200
•      −$1,800
•      +$1,800
•      +$200

Coke is planning on marketing a new drink called Very Berry Coke which is a mixture of raspberry and blackberry flavors blended to perfection and added to the highly secret Coca-Cola formula. This new product is expected to reduce the sales of their existing product, Cherry Coke, by $10 million per year. This is an example of a:

Multiple Choice

•      complementary effect.
•      substitutionary effect.
•      opportunity effect.
•      pro forma effect

The research chemists at MegaClean created a new cleaner that keeps car and truck tires shiny and clean for one year. They believe that this product will be highly successful and will attract customers to purchase their existing line of household cleaning products. This is an example of:

Multiple Choice

•      sunk cost.
•      opportunity effect.
•      complementary effect.
•      substitutionary effect.

Suppose you sell a fixed asset for $99,000 when its book value is $75,000. If your company's marginal tax rate is 39 percent, what is the gain or loss on the sale of the asset?

Multiple Choice

•      $24,000
•      $14,640
•      $11,600
•      $10,300

Effects that arise from a new product or service that decrease sales of the firm's existing products or services are referred to as:

Multiple Choice

•      marginal effects.
•      substitutionary effects.
•      complementary effects.
•      sunk effects.

Suppose you sell a fixed asset for $112,000 when its book value is $112,000. If your company's marginal tax rate is 39 percent, what will be the effect on cash flows of this sale (i.e., what will be the after-tax cash flow of this sale)?

Multiple Choice

•      $112,000
•      $0
•      $34,720
•      $68,320