1.A small manufacturing company with a gross income of $360,000 has the
following operating expenses: M&O = $76,000, insurance = $7,000, labor =
$110,000, utilities = $29,000, debt service = $37,000, and taxes = $9,000. The net
operating income (NOI) is closest to
A) $138,000
2.Depreciation recapture occurs when a depreciable asset is sold for
A) more than the current book value.
3.A mine purchased for $2.5 million has a total expected yield of 500,000 ounces of
silver. What is the depletion charge in year 5 when 80,000 ounces are mined and
sold with $1 million of gross income, using the percentage depletion method? The
percentage depletion rate for silver mines is specified as 15%.
A) $150,000
4.All of the following assets can be depreciated, except
A) a copper mine
5.Compared to the straight-line depreciation method, the MACRS depreciation
method results in a PW of taxes, and therefore in a PW of a project
A) lower; higher
6.A graduated income tax system means
A) higher tax rates go with higher taxable incomes
7.South African Gold Mines, Inc. is writing off its $210 million investment using the
cost depletion method. An estimated 700,000 ounces of gold are available in its
developed mines. This year 35,000 ounces were produced at an average price of
$400 per ounce. The depletion for the year is closest to
A) $10.5 million
8.Cash flow before taxes (CFBT) is represented by the equation
A) gross income – operating expenses – initial investment + salvage value
9.If the federal tax rate is 36% and the state tax rate is 7%, the effective tax rate is
closest to
A) 40.50%
10.Pennington Oil is in the 50% effective tax bracket. It had gross income of $470
million in each of the last two years. In the first year, deductions were $160 million.
In the second year, deductions were lower at $120 million. The difference in income
taxes paid by the company in the two years was closest to
A) $20 million.
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