Exam 14: Capital Investment Decisions

Cooper Industries is considering a project that would require an initial investment of $101,000.The project would result in cost savings of $62,000 in year 1 and $70,000 in year two.The internal rate of return is

A firm is considering a project with an annual cash flow of $200,000.The project would have a seven year life,and the company uses a discount rate of 10 percent.What is the maximum amount the company could invest in the project and have the project still be acceptable?

Which of the following is not a benefit of postaudits of capital investments?

The process of planning,setting goals and priorities,arranging financing,and using certain criteria to select long-term assets is called capital investment decisions.

An obvious problem with postaudits is that the assumptions driving the original analysis may often be invalidated by changes in the actual operating environment.

Figure 14-4. Sony Lavery is considering investing $45,000 in a project with the following cash revenues and expenses: Refer to Figure 14-4.Assuming straight-line depreciation over eight years,what is the payback period for the project?

Amatra Inc.,has the opportunity to invest in new equipment that will cost $113,000.The net cash inflows for ten years equal $20,000 per year.What is the internal rate of return for the investment? A partial table of the present value of an annuity of $1 in arrears is as follows:

Which of the following provides an absolute dollar measure?

Figure 14-9. Kenner Company is considering two projects. Present value of an Annuity of $1 in Arrears Refer to Figure 14-9.Suppose that Kenner Company requires a minimum rate of return of 8 percent.Which project is better in terms of net present value?

The internal rate of return is defined as

The amount that must be invested now to produce a future value is known as the ____________ of the future amount.

For independent projects,net present value analysis and internal rate of return analysis yield the same decision.

One way to use the payback period is to set a maximum payback period for all projects and to reject any project that exceeds this level.

The two types of capital budgeting projects are ________________ and _______________. or

Before-tax cash flows must be forecasted and used in capital investment decision making.

Figure 14-9. Kenner Company is considering two projects. Present value of an Annuity of $1 in Arrears Refer to Figure 14-9.Which of the two projects,A or B,is better in terms of internal rate of return?

The following information pertains to an investment: The present value of the annual cash flow (rounded)is

A firm is considering a project with an annual cash flow of $80,000.The project would have a 10-year life,and the company uses a discount rate of 8 percent.What is the maximum amount the company could invest in the project and have the project still be acceptable (rounded)?

Neil Morrison has just invested $130,000 in a restaurant.He expects to receive income of $24,000 a year,and to have the investment for 8 years.What is the accounting rate of return?

Figure 14-6. Present value of $1 Present value of an Annuity of $1 Refer to Figure 14-6.Morgan Clinical Practice is considering an investment in new imaging equipment that will cost $400,000.The equipment is expected to yield cash inflows of $80,000 per year for a six year period.Morgan set a required rate of return at 10 percent.What is the net present value of the investment? (Note: there may be a rounding error depending on the table you use to compute your answer.Choose the answer closest to the one you calculate.)