 |
1 | |
Which of the following does not represent a maxim for reducing tax costs and enhancing cash flows? |
| | A) | Tax costs decrease (and cash flows increase) when income is generated by and entity subject to a lower tax rate |
| | B) | In present value terms, tax costs decrease (and cash flows increase) when a tax liability is deferred until a later taxable year. |
| | C) | Tax costs increase (and cash flows decrease) when income is generated in a jurisdiction with a lower tax rate. |
| | D) | Tax costs decrease (and cash flows increase) when income is taxed at a preferential rate because of its character |
| | E) | All of the above represent maxims that decrease tax costs and increase cash flows |
|
|
2 | |
At an annual 12 percent discount rate, the present value of $1 dollar received at the end of 5 years is? |
| | A) | $1 |
| | B) | $0.89 |
| | C) | $0.57 |
| | D) | $0.99 |
| | E) | Some other answer. |
|
|
3 | |
At an annual rate of 9 percent, the future value of $1 received at the end of 10 years is? |
| | A) | $1 |
| | B) | $2.37 |
| | C) | $1.55 |
| | D) | $1.09 |
| | E) | Some other answer. |
|
|
4 | |
Fargo Corporation is considering two projects. Project One is expected to produce $5,000 in net cash flows in each of the next five periods. Project Two is expected to produce $30,000 at the end of the five year period. Assuming a 10 percent annual discount rate, and considering only NPVs which project should Fargo Corporation choose and what is the NPV of the project chosen. |
| | A) | Project One, $18,953.93 |
| | B) | Project Two, $18,627.63 |
| | C) | Project One, $18,627.63 |
| | D) | Project Two, $18,953.93 |
| | E) | Fargo is indifferent between the Projects on a NPV basis. |
|
|
5 | |
Lando Corporation is investing in a project that is expected to produce $10,000 in cash flows each month for the next 24 months. The cash expenditures for each month are $5,000. Assuming an annual discount rate of 12 percent, what is the NPV of Lando 's investment? |
| | A) | $101,403.06 |
| | B) | $202,806.12 |
| | C) | $38,921.58 |
| | D) | $106,216.94 |
| | E) | Some other answer. |
|
|
6 | |
Consider Fargo Corporation's decision in question 4. If Fargo's marginal tax rate is 25 percent on all net cash flows in any tax period, which project will Fargo choose and what is the NPV after-tax? |
| | A) | Project One, $13,970,72 |
| | B) | Project Two, $14,215.45 |
| | C) | Project One, $14,215.45 |
| | D) | Project Two, $13,970.72 |
| | E) | Fargo is indifferent between the Projects after-tax on a NPV basis. |
|
|
7 | |
If the IRS issues a favorable private letter ruling, the firm requesting the ruling has reduced which of the following risks? |
| | A) | Marginal Rate Uncertainty |
| | B) | Tax Law Uncertainty |
| | C) | Audit Risk |
| | D) | Some other risk. |
| | E) | Some other answer. |
|
|
8 | |
Income deferral and opportunity costs are associated with which of the four variables that interact to determine the tax consequences of a business transaction? |
| | A) | Entity Variable |
| | B) | Character Variable |
| | C) | Jurisdiction Variable |
| | D) | Time Period Variable |
| | E) | Some other answer. |
|
|
9 | |
The tax doctrine which requires that an activity must have a motive other than tax avoidance is? |
| | A) | Substance over form doctrine |
| | B) | Assignment of Income Doctrine |
| | C) | Step Transaction Doctrine |
| | D) | Business Purpose Doctrine |
| | E) | Some other answer. |
|
|
10 | |
The tax doctrine that is concerned about identifying who provided the service or who owns the capital is? |
| | A) | Substance Over Form Doctrine. |
| | B) | Business Purpose Doctrine. |
| | C) | Assignment of Income Doctrine. |
| | D) | Step Transaction Doctrine. |
| | E) | Some other answer. |
|
2002 McGraw-Hill Higher Education