Instructions: For each question, click on the radio button beside your answer. When you have completed the entire quiz, click the “Submit my answers” button at the bottom of the page to receive your results.

Question 1:

1- 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:

Operating revenue: $170,000
Operating expenses: $48,000
CCA: $3,200

If the company pays taxes at the rate of 40% on its taxable income, what is the net income during the first year?
a) $32,400
b) $75,800
c) $71,280
d) $45,600

Question 2:

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) $74,480
b) $51,200
c) $45,500
d) $52,300

Question 3:

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.
b) Both corporations will have the same amount of net cash flows in Year 1.
c) Samuel Corporation will have a larger net cash flow than Aqua Corporation in Year 1.
d) Aqua Corporation will have a lower taxable income than Aqua Corporation in Year 1.

Question 4:

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%.)
a) $1,270,000; $320,000
b) $1,295,000; $341,450
c) $1,500,000; $250,000
d) $1,450,000; $456,000

Question 5:

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) $5,460
b) –$5,460
c) –$2,256
d) $2,256

Higher Education

Engineering Economic Analysis, Third Edition: Chapter 12