Question 1

If the appropriate tax rate is 40%, the after-tax effect of a single depreciation deduction of $100,000 is a _____.

Accepted Answer

A) $60,000 net after-tax cash outflow 
B) $60,000 net after-tax cash inflow 
C) $40,000 net after-tax cash outflow 
D) $40,000 net after-tax cash inflow 
A) $60,000 net after-tax cash outflow 
B) $60,000 net after-tax cash inflow 
C) $40,000 net after-tax cash outflow 
D) $40,000 net after-tax cash inflow D

Question 2

When using the NPV method, time zero means the value today.

Accepted Answer

A) True 
 B)False  True

Question 3

A nondiscounted-cash flows, capital-budgeting model that dovetails most closely with conventional accounting models of calculating income and required investment

Accepted Answer

Accounting rate-of-return model

Question 4

The tax rate paid on additional amounts of pretax income

Accepted Answer

Marginal i

Question 5

The IRR model determines the interest rate at which the NPV equals zero.

Accepted Answer

A) True 
 B)False

Question 6

An initial investment of $270,000 is expected to generate $180,000 in annual cost savings over the asset's expected 3-year life.Assume straight-line depreciation and ignore income taxes.The accounting rate of return based on initial investment is _____.

Accepted Answer

A) 11.11% 
B) 44.44% 
C) 33.33% 
D) none of these answers is correct 
A) 11.11% 
B) 44.44% 
C) 33.33% 
D) none of these answers is correct

Question 7

Real rate = risk-free rate + business-risk rate.

Accepted Answer

A) True 
 B)False

Question 8

_____ is not a phase of capital budgeting.

Accepted Answer

A) A postaudit of the investment 
B) The selection of the investment to undertake 
C) The identification of potential investments 
D) The identification of possible sources of funds for the investment 
A) A postaudit of the investment 
B) The selection of the investment to undertake 
C) The identification of potential investments 
D) The identification of possible sources of funds for the investment

Question 9

Identify which one of the following statements regarding the risk of an investment is true.

Accepted Answer

A) The lower the risk, the higher the discount rate. 
B) The higher the risk, the lower the hurdle rate. 
C) The higher the risk, the lower the cost of capital. 
D) The higher the risk, the higher the minimum desired rate of return. 
A) The lower the risk, the higher the discount rate. 
B) The higher the risk, the lower the hurdle rate. 
C) The higher the risk, the lower the cost of capital. 
D) The higher the risk, the higher the minimum desired rate of return.

Question 10

Long-term planning for making and financing investments that affect financial results over more than one year

Accepted Answer

Capital-bu

Question 11

Kobe Company will purchase a van for $50,000.The van's depreciable life is 5 years with no terminal salvage value.Assume a tax rate of 30% and a required after-tax rate of return of 12%.The annual after-tax effect of depreciation, if the straight-line method is used for taxes, is a _____.

Accepted Answer

A) $6,000 outflow 
B) $6,000 inflow 
C) $3,000 outflow 
D) $3,000 inflow 
A) $6,000 outflow 
B) $6,000 inflow 
C) $3,000 outflow 
D) $3,000 inflow

Question 12

_____ is an approach that compares two or more alternatives by computing the total impact on cash flows of each alternative and then converting these total cash flows to their present values.

Accepted Answer

A) The differential approach 
B) The payback approach 
C) The total project approach 
D) The sensitivity approach 
A) The differential approach 
B) The payback approach 
C) The total project approach 
D) The sensitivity approach

Question 13

The cost of capital is equal to the interest expense on the money borrowed for the project.

Accepted Answer

A) True 
 B)False

Question 14

Most of the depreciation taken on an asset occurs at the end of its life when using accelerated depreciation.

Accepted Answer

A) True 
 B)False

Question 15

The net-present-value model expresses all cash flows in monetary units measured at time zero.

Accepted Answer

A) True 
 B)False

Question 16

Joshua Company will purchase a van for $40,000.It will have a depreciable life of 5 years and no terminal salvage value.Assume a tax rate of 20% and a required after-tax rate of return of 12%.The present value of the after-tax saving from depreciation in year 2, if an accelerated method is used of twice the straight-line rate), is _____.

Accepted Answer

A) $1,276 
B) $3,827 
C) $6,378 
D) None of these answers is correct. 
A) $1,276 
B) $3,827 
C) $6,378 
D) None of these answers is correct.

Question 17

The later a company takes the depreciation on its assets, the greater the present value of the income tax savings.

Accepted Answer

A) True 
 B)False

Question 18

When making capital budgeting decisions, the manager should consider the marginal tax rate, not the average tax rate that applies to the company.

Accepted Answer

A) True 
 B)False

Question 19

DCF does not focus on net income.

Accepted Answer

A) True 
 B)False

Question 20

An approach that compares two alternatives by computing the differences in cash flows between alternatives and then converting these differences in cash flows to their present values

Accepted Answer

Differenti

If the appropriate tax rate is 40%, the after-tax effect of a single depreciation deduction of $100,000 is a _____.

When using the NPV method, time zero means the value today.

A nondiscounted-cash flows, capital-budgeting model that dovetails most closely with conventional accounting models of calculating income and required investment

The tax rate paid on additional amounts of pretax income

The IRR model determines the interest rate at which the NPV equals zero.

An initial investment of $270,000 is expected to generate $180,000 in annual cost savings over the asset's expected 3-year life.Assume straight-line depreciation and ignore income taxes.The accounting rate of return based on initial investment is _____.

Real rate = risk-free rate + business-risk rate.

_____ is not a phase of capital budgeting.

Identify which one of the following statements regarding the risk of an investment is true.

Long-term planning for making and financing investments that affect financial results over more than one year

Kobe Company will purchase a van for $50,000.The van's depreciable life is 5 years with no terminal salvage value.Assume a tax rate of 30% and a required after-tax rate of return of 12%.The annual after-tax effect of depreciation, if the straight-line method is used for taxes, is a _____.

_____ is an approach that compares two or more alternatives by computing the total impact on cash flows of each alternative and then converting these total cash flows to their present values.

The cost of capital is equal to the interest expense on the money borrowed for the project.

Most of the depreciation taken on an asset occurs at the end of its life when using accelerated depreciation.

The net-present-value model expresses all cash flows in monetary units measured at time zero.

The later a company takes the depreciation on its assets, the greater the present value of the income tax savings.

When making capital budgeting decisions, the manager should consider the marginal tax rate, not the average tax rate that applies to the company.

DCF does not focus on net income.

An approach that compares two alternatives by computing the differences in cash flows between alternatives and then converting these differences in cash flows to their present values

Managerial Accounting, the Business Organization, and Professional Ethics

Introduction to Cost Behavior and Cost-Volume Relationships

Measurement of Cost Behavior

Cost Management Systems and an Introduction to Activity-Based Costing

Relevant Information and Decision Making With a Focus on Pricing Decisions

Relevant Information and Decision Making: Operational Decisions

Introduction to Budgets and Preparing the Master Budget

Flexible Budgets and Variance Analysis

Management Control Systems and Responsibility Accounting

Management Control in Decentralized Organizations

Cost Allocation

Accounting for Overhead Costs

Job-Costing and Process-Costing Systems

Basic Accounting: Concepts, Techniques, and Conventions

Understanding Corporate Annual Reports: Basic Financial Statements

Understanding and Analyzing Consolidated Financial Statements

Filters

Exam 11: Capital Budgeting

If the appropriate tax rate is 40%, the after-tax effect of a single depreciation deduction of $100,000 is a _____.

When using the NPV method, time zero means the value today.

A nondiscounted-cash flows, capital-budgeting model that dovetails most closely with conventional accounting models of calculating income and required investment

The tax rate paid on additional amounts of pretax income

The IRR model determines the interest rate at which the NPV equals zero.

An initial investment of $270,000 is expected to generate $180,000 in annual cost savings over the asset's expected 3-year life.Assume straight-line depreciation and ignore income taxes.The accounting rate of return based on initial investment is _____.

Real rate = risk-free rate + business-risk rate.

_____ is not a phase of capital budgeting.

Identify which one of the following statements regarding the risk of an investment is true.

Long-term planning for making and financing investments that affect financial results over more than one year

Kobe Company will purchase a van for $50,000.The van's depreciable life is 5 years with no terminal salvage value.Assume a tax rate of 30% and a required after-tax rate of return of 12%.The annual after-tax effect of depreciation, if the straight-line method is used for taxes, is a _____.

_____ is an approach that compares two or more alternatives by computing the total impact on cash flows of each alternative and then converting these total cash flows to their present values.

The cost of capital is equal to the interest expense on the money borrowed for the project.

Most of the depreciation taken on an asset occurs at the end of its life when using accelerated depreciation.

The net-present-value model expresses all cash flows in monetary units measured at time zero.

The later a company takes the depreciation on its assets, the greater the present value of the income tax savings.

When making capital budgeting decisions, the manager should consider the marginal tax rate, not the average tax rate that applies to the company.

DCF does not focus on net income.

An approach that compares two alternatives by computing the differences in cash flows between alternatives and then converting these differences in cash flows to their present values

Managerial Accounting, the Business Organization, and Professional Ethics

Introduction to Cost Behavior and Cost-Volume Relationships

Measurement of Cost Behavior

Cost Management Systems and an Introduction to Activity-Based Costing

Relevant Information and Decision Making With a Focus on Pricing Decisions

Relevant Information and Decision Making: Operational Decisions

Introduction to Budgets and Preparing the Master Budget

Flexible Budgets and Variance Analysis

Management Control Systems and Responsibility Accounting

Management Control in Decentralized Organizations

Cost Allocation

Accounting for Overhead Costs

Job-Costing and Process-Costing Systems

Basic Accounting: Concepts, Techniques, and Conventions

Understanding Corporate Annual Reports: Basic Financial Statements

Understanding and Analyzing Consolidated Financial Statements

Filters