Question 1

Which of the following is true regarding the internal rate of return for a project?

Accepted Answer

A) If the internal rate of return is less than the required rate of return,the project will be rejected. 
B) If the internal rate of return is equal to the required rate of return,the net present value of the project is zero. 
C) If the internal rate of return is more than the required rate of return,the project will be accepted. 
D) Managers may believe (in most cases,incorrectly)that the internal rate of return is the compounded rate of return earned by the initial investment. 
E) all of these 
A) If the internal rate of return is less than the required rate of return,the project will be rejected. 
B) If the internal rate of return is equal to the required rate of return,the net present value of the project is zero. 
C) If the internal rate of return is more than the required rate of return,the project will be accepted. 
D) Managers may believe (in most cases,incorrectly)that the internal rate of return is the compounded rate of return earned by the initial investment. 
E) all of these

Question 2

Taxes are important consideration in forecasting cash flows.

Accepted Answer

A) True 
 B)False

Question 3

In practice,managers often choose a discount rate that is higher than the cost of capital.

Accepted Answer

A) True 
 B)False

Question 4

The difference between the present value of the cash inflows and the outflows associated with a project is known as the ___________________.

Accepted Answer

The answer of The difference between the present value of...

Question 5

Figure 14-6. Present value of $1
  Present value of an Annuity of $1
  Refer to Figure 14-6.Roman Knoze is considering two investments.Each will cost $20,000 initially.Project 1 will return annual cash flows of $10,000 in each of three years.Project 2 will return $5,000 in year 1,$10,000 in year 2,and $15,000 in year 3.Roman requires a minimum rate of return of 10 percent.What is the net present value of Project 1? (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.)

Accepted Answer

A) $20,000 
B) $25,670 
C) $4,860 
D) $22,530 
E) $2,530 
A) $20,000 
B) $25,670 
C) $4,860 
D) $22,530 
E) $2,530

Question 6

Figure 14-5. Sara Turner is considering investing $60,000 in a project with the following cash revenues and expenses:
  Refer to Figure 14-5.What is the accounting rate of return for the project?

Accepted Answer

A) 8.67% 
B) 15.60% 
C) 7.50% 
D) 3.10% 
E) Cannot be calculated with this information 
A) 8.67% 
B) 15.60% 
C) 7.50% 
D) 3.10% 
E) Cannot be calculated with this information

Question 7

Figure 14-10.
Present value of $1
   Present value of an Annuity of $1
   Refer to Figure 14-10.Geary Company is considering an investment costing $110,000.The investment would return $40,000 per year in each of three years.Geary requires a minimum rate of return of 10%.

Accepted Answer

The answer of Figure 14-10.
Present value of $1
  ...

Question 8

The ______________ is the time required for a firm to recover its original investment.

Accepted Answer

The answer of The ______________ is the time required for...

Question 9

The best model for choosing the best of several competing projects is

Accepted Answer

A) net present value. 
B) internal rate of return. 
C) payback period. 
D) accounting rate of return. 
E) none of these. 
A) net present value. 
B) internal rate of return. 
C) payback period. 
D) accounting rate of return. 
E) none of these.

Question 10

_____________________ explicitly consider the time value of money.

Accepted Answer

The answer of _____________________ explicitly consider the time value of...

Question 11

Two discounting models for capital investment decision making are net present value and internal rate of return.

Accepted Answer

A) True 
 B)False

Question 12

The internal audit staff is usually the best choice for performing a postaudit of a capital investment.

Accepted Answer

A) True 
 B)False

Question 13

Tessa Wilson invested in a project with a payback period of 6 years.The project brings $18,000 per year for a period of 9 years.What was the initial investment?

Accepted Answer

A) $108,000 
B) $107,500 
C) $162,000 
D) $240,000 
E) cannot be determined from this information 
A) $108,000 
B) $107,500 
C) $162,000 
D) $240,000 
E) cannot be determined from this information

Question 14

The interest rate that sets the present value of a project's cash inflows equal to the present value of the project's cost is called the ____.

Accepted Answer

A) present value 
B) discount rate 
C) company cost of capital 
D) payback period 
E) internal rate of return 
A) present value 
B) discount rate 
C) company cost of capital 
D) payback period 
E) internal rate of return

Question 15

Figure 14-2. A company is considering two projects.
  Refer to Figure 14-2.What is the payback period for Project A?

Accepted Answer

A) 4.5 year 
B) 2.5 years 
C) 5 years 
D) 3.5 years 
E) 4 years 
A) 4.5 year 
B) 2.5 years 
C) 5 years 
D) 3.5 years 
E) 4 years

Question 16

The minimum acceptable rate of return for a project is the required rate of return.

Accepted Answer

A) True 
 B)False

Question 17

Only accounting rate of return ignores the time value of money.

Accepted Answer

A) True 
 B)False

Question 18

Buster Evans is considering investing $20,000 in a project with the following annual cash revenues and expenses:   Depreciation will be $4,000 per year.
What is the accounting rate of return on the investment?

Accepted Answer

A) 15% 
B) 35% 
C) 70% 
D) 75% 
E) none of these 
A) 15% 
B) 35% 
C) 70% 
D) 75% 
E) none of these

Question 19

An investment of $5,000 provides an average net cash flows of $320 with zero salvage value.Depreciation is $35 per year.The accounting rate of return using the original investment is

Accepted Answer

A) 4.0% 
B) 5.1% 
C) 5.7% 
D) 3.2% 
E) 2.4% 
A) 4.0% 
B) 5.1% 
C) 5.7% 
D) 3.2% 
E) 2.4%

Question 20

Figure 14-11.
Present value of an Annuity of $1 in Arrears
   Refer to Figure 14-11.Lyster Company wants to buy a new machine that will be able to perform many of the steps in the manufacturing process that they currently have to do manually.The hope is that it will reduce the amount of time it takes to create one unit and reduce the number of defective units.The machine requires an investment of $750,000.The machine will last six years with no expected salvage value.The expected after-tax cash flows associated with the project are as follows:

Accepted Answer

The answer of Figure 14-11.
Present value of an Annuity of...

Which of the following is true regarding the internal rate of return for a project?

Taxes are important consideration in forecasting cash flows.

In practice,managers often choose a discount rate that is higher than the cost of capital.

The difference between the present value of the cash inflows and the outflows associated with a project is known as the ___________________.

Figure 14-5. Sara Turner is considering investing $60,000 in a project with the following cash revenues and expenses: Refer to Figure 14-5.What is the accounting rate of return for the project?

Figure 14-10. Present value of $1 Present value of an Annuity of $1 Refer to Figure 14-10.Geary Company is considering an investment costing $110,000.The investment would return $40,000 per year in each of three years.Geary requires a minimum rate of return of 10%.

The ______________ is the time required for a firm to recover its original investment.

The best model for choosing the best of several competing projects is

_____________________ explicitly consider the time value of money.

Two discounting models for capital investment decision making are net present value and internal rate of return.

The internal audit staff is usually the best choice for performing a postaudit of a capital investment.

Tessa Wilson invested in a project with a payback period of 6 years.The project brings $18,000 per year for a period of 9 years.What was the initial investment?

The interest rate that sets the present value of a project's cash inflows equal to the present value of the project's cost is called the ____.

Figure 14-2. A company is considering two projects. Refer to Figure 14-2.What is the payback period for Project A?

The minimum acceptable rate of return for a project is the required rate of return.

Only accounting rate of return ignores the time value of money.

Buster Evans is considering investing $20,000 in a project with the following annual cash revenues and expenses: Depreciation will be $4,000 per year. What is the accounting rate of return on the investment?

An investment of $5,000 provides an average net cash flows of $320 with zero salvage value.Depreciation is $35 per year.The accounting rate of return using the original investment is

Introduction to Managerial Accounting

Basic Managerial Accounting Concepts

Cost Behavior

Cost-Volume-Profit Analysis: a Managerial Planning Tool

Job-Order Costing

Process Costing

Activity-Based Costing and Management

Absorption and Variable Costing,and Inventory Management

Profit Planning

Standard Costing: a Managerial Control Tool

Flexible Budgets and Overhead Analysis

Performance Evaluation and Decentralization

Short-Run Decision Making: Relevant Costing

Statement of Cash Flows

Financial Statement Analysis

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Exam 14: Capital Investment Decisions

Which of the following is true regarding the internal rate of return for a project?

Taxes are important consideration in forecasting cash flows.

In practice,managers often choose a discount rate that is higher than the cost of capital.

The difference between the present value of the cash inflows and the outflows associated with a project is known as the ___________________.

Figure 14-5. Sara Turner is considering investing $60,000 in a project with the following cash revenues and expenses: Refer to Figure 14-5.What is the accounting rate of return for the project?

Figure 14-10. Present value of $1 Present value of an Annuity of $1 Refer to Figure 14-10.Geary Company is considering an investment costing $110,000.The investment would return $40,000 per year in each of three years.Geary requires a minimum rate of return of 10%.

The ______________ is the time required for a firm to recover its original investment.

The best model for choosing the best of several competing projects is

_____________________ explicitly consider the time value of money.

Two discounting models for capital investment decision making are net present value and internal rate of return.

The internal audit staff is usually the best choice for performing a postaudit of a capital investment.

Tessa Wilson invested in a project with a payback period of 6 years.The project brings $18,000 per year for a period of 9 years.What was the initial investment?

The interest rate that sets the present value of a project's cash inflows equal to the present value of the project's cost is called the ____.

Figure 14-2. A company is considering two projects. Refer to Figure 14-2.What is the payback period for Project A?

The minimum acceptable rate of return for a project is the required rate of return.

Only accounting rate of return ignores the time value of money.

Buster Evans is considering investing $20,000 in a project with the following annual cash revenues and expenses: Depreciation will be $4,000 per year. What is the accounting rate of return on the investment?

An investment of $5,000 provides an average net cash flows of $320 with zero salvage value.Depreciation is $35 per year.The accounting rate of return using the original investment is

Introduction to Managerial Accounting

Basic Managerial Accounting Concepts

Cost Behavior

Cost-Volume-Profit Analysis: a Managerial Planning Tool

Job-Order Costing

Process Costing

Activity-Based Costing and Management

Absorption and Variable Costing,and Inventory Management

Profit Planning

Standard Costing: a Managerial Control Tool

Flexible Budgets and Overhead Analysis

Performance Evaluation and Decentralization

Short-Run Decision Making: Relevant Costing

Statement of Cash Flows

Financial Statement Analysis

Filters