Question 1

A negative net present value means that the:

Accepted Answer

A)  Company chose the wrong discount rate 
B)  Internal rate of return is less than the required rate of return 
C)  Project is acceptable 
D)  Present value of the inflows exceeds the present value of the outflows 
A)  Company chose the wrong discount rate 
B)  Internal rate of return is less than the required rate of return 
C)  Project is acceptable 
D)  Present value of the inflows exceeds the present value of the outflows

Question 2

What is the net present value of a capital project to buy new equipment for replacing old equipment, given the following data and a minimum return of 12%? Ignore income taxes. $\begin{array}{lrr}
&\text {Old}&\text { New}\
&\underline{\text { Equipment }}&\underline{\text { Equipment }}\
\text { Purchase price } & \$ 21,600 & \$ 36,000 \
\text { Accumulated depreciation } & 7,200 & 0 \
\text { Remaining useful life (years) } & 8 & 8 \
\text { Current salvage value } & 12,000 & 0 \
\text { Salvage value in 8 years } & 1,000 & 2,000 \
\text { Annual operating costs } & 14,000 & 8,000
\end{array}$

Accepted Answer

A)  $7,020 
B)  $6,616 
C)  $(5,788) 
D)  $4,596 
A)  $7,020 
B)  $6,616 
C)  $(5,788) 
D)  $4,596

Question 3

Sensitivity analysis is usually performed after applying quantitative analysis techniques in a capital budgeting decision.

Accepted Answer

A) True 
 B)False

Question 4

Leopold Ltd has invested in a machine with a cost of $37,164 and annual cost savings of $6,000. The discount rate is 8%, and the machine's internal rate of return is 12%. Ignore income taxes. The estimated life of the machine is:

Accepted Answer

A)  12 years 
B)  8 years 
C)  6.2 years 
D)  Cannot be determined 
A)  12 years 
B)  8 years 
C)  6.2 years 
D)  Cannot be determined

Question 5

The real and nominal methods are most closely associated with:

Accepted Answer

A)  Cost of capital 
B)  Internal rate of return 
C)  Payback 
D)  Net present value 
A)  Cost of capital 
B)  Internal rate of return 
C)  Payback 
D)  Net present value

Question 6

Which of the following is not a step in the process for addressing capital budgeting decisions?

Accepted Answer

A)  Perform sensitivity analysis. 
B)  Identify decision alternatives. 
C)  Identify financial statement effects. 
D)  Apply quantitative analysis techniques. 
A)  Perform sensitivity analysis. 
B)  Identify decision alternatives. 
C)  Identify financial statement effects. 
D)  Apply quantitative analysis techniques.

Question 7

Robertson is considering automating its production line at a cost of $40,000 to acquire the necessary equipment. The annual cost savings are expected to be $8,000 for 14 years. The firm requires a 20% rate of return. Ignore income taxes. The net present value for this investment is

Accepted Answer

A)  Cannot be determined 
B)  Positive 
C)  Zero 
D)  Negative 
A)  Cannot be determined 
B)  Positive 
C)  Zero 
D)  Negative

Question 8

An organisation that provides housing for abused women has limited housing, so it pays rent for several families. The director is considering expanding the housing facilities by purchasing a duplex that has a useful life of 10 years. The estimated cost is $100,000. Using a discount rate of 15%, the present value of the future savings on rent is $120,000. To yield an internal rate of return that is at least 15%, the actual cost cannot exceed the estimated cost of $100,000 by more than:

Accepted Answer

A)  $2,000 
B)  $10,038 
C)  $3,985 
D)  $20,000 
A)  $2,000 
B)  $10,038 
C)  $3,985 
D)  $20,000

Question 9

Which of the following is not a quantitative technique commonly used in capital budgeting decisions?

Accepted Answer

A)  Payback 
B)  Net present value 
C)  Activity-based budgeting 
D)  Internal rate of return 
A)  Payback 
B)  Net present value 
C)  Activity-based budgeting 
D)  Internal rate of return

Question 10

Paul is presenting a capital budgeting project to Karl, his division manager. Which one of the following is likely to have the least amount of bias when evaluating this project?

Accepted Answer

A)  Cannot be determined 
B)  Sebastian 
C)  Tamara 
D)  The company's accountant 
A)  Cannot be determined 
B)  Sebastian 
C)  Tamara 
D)  The company's accountant

Question 11

The cost of disposing of an old asset is considered irrelevant in capital budgeting decisions.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements regarding NPV analysis is true?

Accepted Answer

A)  The timing of incremental revenues and costs is irrelevant in NPV analysis 
B)  Uncertainties increase as the dollar value of an investment increases 
C)  The discount rate can be calculated with certainty if it is based on the weighted average cost of capital 
D)  Managers should generally accept projects with an NPV greater than zero 
A)  The timing of incremental revenues and costs is irrelevant in NPV analysis 
B)  Uncertainties increase as the dollar value of an investment increases 
C)  The discount rate can be calculated with certainty if it is based on the weighted average cost of capital 
D)  Managers should generally accept projects with an NPV greater than zero

Question 13

A capital investment's expected useful life is inversely correlated with the uncertainty of its cash flows.

Accepted Answer

A) True 
 B)False

A negative net present value means that the:

Sensitivity analysis is usually performed after applying quantitative analysis techniques in a capital budgeting decision.

Leopold Ltd has invested in a machine with a cost of $37,164 and annual cost savings of $6,000. The discount rate is 8%, and the machine's internal rate of return is 12%. Ignore income taxes. The estimated life of the machine is:

The real and nominal methods are most closely associated with:

Which of the following is not a step in the process for addressing capital budgeting decisions?

Robertson is considering automating its production line at a cost of $40,000 to acquire the necessary equipment. The annual cost savings are expected to be $8,000 for 14 years. The firm requires a 20% rate of return. Ignore income taxes. The net present value for this investment is

Which of the following is not a quantitative technique commonly used in capital budgeting decisions?

Paul is presenting a capital budgeting project to Karl, his division manager. Which one of the following is likely to have the least amount of bias when evaluating this project?

The cost of disposing of an old asset is considered irrelevant in capital budgeting decisions.

Which of the following statements regarding NPV analysis is true?

A capital investment's expected useful life is inversely correlated with the uncertainty of its cash flows.

The Role of Accounting Information in Management Decision Making

Cost Concepts, Behaviour and Estimation

A Costing Framework and Cost Allocation

Costvolumeprofit Cvp Analysis

Planning Budgeting and Behaviour

Operational Budgets

Job and Process Costing Systems

Flexible Budgets, Standard Costs and Variance Analysis

Variance Analysis: Revenue and Cost

Activity Analysis: Costing and Management

Relevant Costs for Decision Making

Strategy and Control

The Strategic Management of Costs and Revenues

Strategic Management Control: a Lean Perspective

Responsibility Accounting, Performance Evaluation and Transfer Pricing

The Balanced Scorecard and Strategy Maps

Rewards, Incentives and Risk Management

Sustainability Management Accounting

Filters

Exam 13: Capital Budgeting and Strategic Investment Decisions

A negative net present value means that the:

Sensitivity analysis is usually performed after applying quantitative analysis techniques in a capital budgeting decision.

Leopold Ltd has invested in a machine with a cost of $37,164 and annual cost savings of $6,000. The discount rate is 8%, and the machine's internal rate of return is 12%. Ignore income taxes. The estimated life of the machine is:

The real and nominal methods are most closely associated with:

Which of the following is not a step in the process for addressing capital budgeting decisions?

Robertson is considering automating its production line at a cost of $40,000 to acquire the necessary equipment. The annual cost savings are expected to be $8,000 for 14 years. The firm requires a 20% rate of return. Ignore income taxes. The net present value for this investment is

Which of the following is not a quantitative technique commonly used in capital budgeting decisions?

Paul is presenting a capital budgeting project to Karl, his division manager. Which one of the following is likely to have the least amount of bias when evaluating this project?

The cost of disposing of an old asset is considered irrelevant in capital budgeting decisions.

Which of the following statements regarding NPV analysis is true?

A capital investment's expected useful life is inversely correlated with the uncertainty of its cash flows.

The Role of Accounting Information in Management Decision Making

Cost Concepts, Behaviour and Estimation

A Costing Framework and Cost Allocation

Costvolumeprofit Cvp Analysis

Planning Budgeting and Behaviour

Operational Budgets

Job and Process Costing Systems

Flexible Budgets, Standard Costs and Variance Analysis

Variance Analysis: Revenue and Cost

Activity Analysis: Costing and Management

Relevant Costs for Decision Making

Strategy and Control

The Strategic Management of Costs and Revenues

Strategic Management Control: a Lean Perspective

Responsibility Accounting, Performance Evaluation and Transfer Pricing

The Balanced Scorecard and Strategy Maps

Rewards, Incentives and Risk Management

Sustainability Management Accounting

Filters