Practice Quiz Chapter 12

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. Please see the PDF attachment to answer this question. A printing company buys a machine for $50,000 (Year 0) and expects to use it for 6 years, after which it will be sold for $5,500. Suppose the company estimates the following revenues and expenses for the first operating year. If the company pays taxes at the rate of 40% on its taxable income, what is the net income during the first year?

a) $32400 correct incorrect

b) $75800 correct incorrect

c) $71280 correct incorrect

d) $45600 correct incorrect

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. In the previous problem, assume (1) all sales are for cash and (2) all costs, except depreciation, were paid during Year 1. How much cash would have been generated from operations?

a) $74480 correct incorrect

b) $51200 correct incorrect

c) $45500 correct incorrect

d) $52300 correct incorrect

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. Aqua Corporation had a gross income of $400,000 in tax Year 1, $100,000 in salaries, $60,000 in wages, and $40,000 in CCA. Samuel Corporation had a gross income of $400,000 in tax Year 1, $100,000 in salaries, and $100,000 in wages. The two corporations are both based in Saskatoon. Applying both federal and provincial tax rates, which of the following statements is correct?

a) Both corporations will pay the same amount of income tax in Year 1. correct incorrect

b) Both corporations will have the same amount of net cash flows in Year 1. correct incorrect

c) Samuel Corporation will have a larger net cash flow than Aqua Corporation in Year 1. correct incorrect

d) Aqua Corporation will have a lower taxable income than Aqua Corporation in Year 1. correct incorrect

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. An electrical appliance company was formed in Halifax, Nova Scotia. The company had a gross income of $2,400,000 for the calendar year. Manufacturing costs and all operating expenses, excluding the capital expenditures, were $1,000,000. The CCA for capital expenditure amounted to $105,000 (combined small business tax rate on $400,000 taxable income is 16% and combined manufacturing tax rate on remaining is 31%). Compute the taxable income of the company and the company's income taxes for the year.

a) $1,270,000; $320,000 correct incorrect

b) $1,295,000; $341,450 correct incorrect

c) $1,500,000; $250,000 correct incorrect

d) $1,450,000; $456,000 correct incorrect

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. Consider a CCA class 8 asset (d=20%) which was purchased at $70,000.The salvage value in Year 4 is $30,000. Compute the gain/loss when the asset is disposed of in Year 4.

a) $5460 correct incorrect

b) -$5460 correct incorrect

c) -$2256 correct incorrect

d) $2256 correct incorrect

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. AlphaTech has bought a new production system at the beginning of the fiscal year at a cost of $300,000. The relevant capital cost allowance rate is 20% and the corporate tax rate is 35%. If the net revenue at the end of Year 5 is estimated to be $45,000, determine the tax payable.

a) $5,107 correct incorrect

b) $6,982 correct incorrect

c) $9,299 correct incorrect

d) $13,600 correct incorrect

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. AlphaTech has bought a new production system at the beginning of the fiscal year at a cost of $300,000. The relevant capital cost allowance rate is 20% and the corporate tax rate is 35%. Determine the after-tax cash flow in Year 5, given the estimated net revenue is $45,000.

a) $31,400 correct incorrect

b) $35,701 correct incorrect

c) $38,018 correct incorrect

d) $39,893 correct incorrect

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. Please see the PDF attachment to answer this question. WestTech considers undertaking a new project. Determine the net working capital in Year 4.

a) $67,500 correct incorrect

b) $85,217 correct incorrect

c) $95,750 correct incorrect

d) $114,040 correct incorrect

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. Please see the PDF attachment to answer this question. WestTech considers undertaking a new project. Determine the net salvage value of the capital asset.

a) $15,356 correct incorrect

b) $15,990 correct incorrect

c) $31,790 correct incorrect

d) $34,139 correct incorrect

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. Please see the PDF attachment to answer this question. WestTech considers undertaking a new project. Determine the net present worth of the project.

a) $742,373 correct incorrect

b) $747,374 correct incorrect

c) $758,473 correct incorrect

d) $764,605 correct incorrect