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Free CMA Exam Braindumps (page: 25)

Page 25 of 336
PDF with 1336 Questions
View Related Case Study

Depreciation is incorporated explicitly in the discounted cash flow analysis of an investment proposal because it

  1. Is a cost of operations that cannot be avoided?
  2. Is a cash inflow.
  3. Reduces the cash outlay for income taxes.
  4. Represents the initial cash outflow spread over the life of the investment.

Answer(s): C

Explanation:

Depreciation is a noncash expense that is deductible for federal income tax purposes. Hence, it directly reduces the cash outlay for income taxes and is explicitly incorporated in the capital budgeting model.



View Related Case Study

Henderson, Inc. has purchased a new fleet of trucks to deliver its merchandise. The trucks have a useful life of 8 years and cost a total of $500.000. Henderson expects its net increase in after-tax cash flow to be $150,000 in Year 1, $175,000 in Year 2, $125,000 in Year 3, and $100,000 in each of the remaining years. Ignoring the time value of money, how long will it take Henderson to recover the amount of investment?

  1. 3.5 years.
  2. 4.0 years.
  3. 4.2 years.
  4. 5 years.

Answer(s): A

Explanation:

The payback period for an investment, ignoring the time value of money, can be found by accumulating each year's net cash flows until the initial investment is recovered. The amount accumulated after 3 years is $450,000. Thus, 50% ofYear4 cash flows is needed to recover the initial investment. The payback period is 3.5 years.



View Related Case Study

Henderson, Inc. has purchased a new fleet of trucks to deliver its merchandise. The trucks have a useful life of 8 years and cost a total of $500,000. Henderson expects its net increase in after4ax cash flow to be $150,000 in Year 1, $175,000 in Year 2, $125,000 in Year 3, and $100,000 in each of the remaining years. What is the payback reciprocal for Henderson's fleet of trucks?

  1. 29%
  2. 25%
  3. 24%
  4. 20%

Answer(s): A

Explanation:

The payback reciprocal for an investment is found by dividing 1 by the payback time. The pay back time for this investment is 3.Syears, and the pay back reciprocal is 1 divided by3.5, or29%.



View Related Case Study

Henderson, Inc. has purchased a new fleet of trucks to deliver its merchandise. The trucks have a useful life of 8 years and cost a total of $500.000. Henderson expects its net increase in after-tax cash flow to be $150,000 in Year 1, $175,000 in Year 2, $125,000 in Year 3, and $100,000 in each of the remaining years. If the net cash flow is $ 130,000 a year, what is the payback time for Henderson's fleet of trucks?

  1. 3years.
  2. 3.l5years.
  3. 3.85 years.
  4. 4years.

Answer(s): C

Explanation:

payback period for an investment, ignoring the time value of money, can be found by accumulating each year's net cash flows until the initial investment is recovered. Therefore, dividing the $500,000 initial investment by the annual $130,000 inflow gives a payback time of 3.85 years.



Page 25 of 336



Post your Comments and Discuss Financial CMA exam with other Community members:

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