2.

The inflation element

refers to theA. Impact that
future price increases will
have on the original cost of a
capital expenditure.B. Fact
that the real purchasing power
of a monetary unit usually
increases over time.C.Future
deterioration of the general
purchasing power of the
monetary unit.D. Future
increases in the general
purchasing power of the
monetary unit.3.Mahlin
Movers, Inc. is planning to
purchase equipment to make
its operations more
efficient.This equipment has
an estimated useful life of six
years.As part of this
acquisition, aP150,000
investment in working capital
is required.In a discounted
cash flow analysis,
thisinvestment in working
capital should beA. Amortized
over the useful life of the
equipment.B. Disregarded
because no cash is involved.C.
Treated as a recurring annual
cash flow that is recovered at
the end of six years.D.Treated
as an immediate cash outflow
that is recovered at the end of
six years.4.To approximate
annual cash inflow,
depreciation isA. Added back
to net income because it is an
inflow of cash.B. Subtracted
from net income because it is
an outflow of cash.C.
Subtracted from net income
because it is an
expense.D.Added back to net
income because it is not an
outflow of cash.5.In capital
expenditures decisions, the
following are relevant in
estimating operating
costsexceptA. Future costs.B.
Cash costs.C. Differential
costs.D.Historical
costs.6.Which of the following
best identifies the reason for
using probabilities in capital
budgetingisA. Different life of
projects.C.Uncertainty.B. Cost
of capital.D. Time value of
money.7.In capital budgeting
decisions, the following items
are considered among
others:1.Cash outflow for the
investment.2.Increase in
working capital
requirements.3.Profit on sale
of old asset4.Loss on write-off
of old asset.For which of the
above items would taxes be
relevant?A. Items 1 and 3
only.C. All items.B.Items 3
and 4 only.D. Items 1, 3 and 4
only.8.Your company is
purchasing a transport
equipment as part of its
territorial
expansionstrategy.The
technical services department
indicated that this equipment
needs overhaulingin year 4 or
year 5 of its useful life.The
overhauling cost will be
expected during the
yearMSQ-06Page 1