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1.________ is an expense that is a legal obligation of the firm.

1. Labor expense
2. Interest expense
3. Salaries expense
4. Rent expense

2. Under MACRS, an asset which originally cost $10,000 is being depreciated using a 5-year normal recovery period. What is the depreciation expense in year 3?

1. $1,200
2. $1,900
3. $2,100
4. $1,500

3.Which of the following is a source of cash flows?

1. Depreciation.
2. Taxes.
3. Cost of goods sold.
4. Interest expense.

4.A firm's operating cash flow is defined as

1. EBIT + depreciation.
2. gross profit minus operating expenses.
3. gross profit minus depreciation.
4. EBIT - taxes + depreciation.

5. $100 is received at the beginning of year 1, $200 is received at the beginning of year 2, and $300 is received at the beginning of year 3. If these cash flows are deposited at 12 percent, their combined future value at the end of year 3 is ________.

1. $1,245
2. $ 727
3. $1,536
4. $ 672

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The solution explains some multiple choice questions in capital budgeting

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1. Interest expense
If interest is not paid, then the firm can go bankrupt

2. Under 5 year ...

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