Question 1

When choosing among several investments, managers should pick the one with the lowest net present value.

Accepted Answer

A) True 
 B)False

Question 2

A good rule of thumb in tax planning is to recognize taxable income sooner rather than later.

Accepted Answer

A) True 
 B)False

Question 3

The more sensitive to change a project is, the riskier it is.

Accepted Answer

A) True 
 B)False

Question 4

Depreciating an asset is a cash flow.

Accepted Answer

A) True 
 B)False

Question 5

A 5-year depreciation period usually means that _____.

Accepted Answer

A) the company expects to use the asset for 5 years 
B) the company will depreciate the asset over 5 years for tax purposes 
C) the original cost of the asset will be recouped in 5 years 
D) all of these answers are correct 
A) the company expects to use the asset for 5 years 
B) the company will depreciate the asset over 5 years for tax purposes 
C) the original cost of the asset will be recouped in 5 years 
D) all of these answers are correct

Question 6

A five-year MACRS asset that cost $50,000 with zero terminal value was sold at the end of its useful life for $20,000.The tax rate is 20%._____ is the net after-tax cash inflow resulting from the transaction.

Accepted Answer

A) $56,000 
B) $66,000 
C) $8,000 
D) $16,000 
A) $56,000 
B) $66,000 
C) $8,000 
D) $16,000

Question 7

The time it will take to recoup, in the form of cash inflows from operations, the initial dollars invested in a project is known as the _____.

Accepted Answer

A) accelerated recovery period 
B) internal return period 
C) payback period 
D) accounting return period 
A) accelerated recovery period 
B) internal return period 
C) payback period 
D) accounting return period

Question 8

Federal income taxes are based on the value of a company's assets.

Accepted Answer

A) True 
 B)False

Question 9

Under the NPV method, the higher the risk of a project, the lower the desired rate of return.

Accepted Answer

A) True 
 B)False

Question 10

_____ is are) not a relevant cash inflow or cash outflow.

Accepted Answer

A) Depreciation 
B) Future disposal value 
C) Operating cash flows 
D) Initial cash inflow and outflow at time zero 
A) Depreciation 
B) Future disposal value 
C) Operating cash flows 
D) Initial cash inflow and outflow at time zero

Question 11

_____ shows the financial consequences that would occur if actual cash flows differ from expected cash flows.

Accepted Answer

A) Discount analysis 
B) Interest analysis 
C) Sensitivity analysis 
D) Forecasting 
A) Discount analysis 
B) Interest analysis 
C) Sensitivity analysis 
D) Forecasting

Question 12

The tax effect of a loss on disposal

Accepted Answer

The answer of The tax effect of a loss on...

Question 13

A follow-up evaluation of capital-budgeting decisions is called a postaudit.

Accepted Answer

A) True 
 B)False

Question 14

The payback model measures profitability as well as how quickly investment dollars may be recouped.

Accepted Answer

A) True 
 B)False

Question 15

The total project approach can be used to compare any number of projects.

Accepted Answer

A) True 
 B)False

Question 16

An asset with a book value of $200,000 is sold at a loss before taxes are considered) of $40,000.If the applicable tax rate is 40%, _____ is the tax effect of the loss.

Accepted Answer

A) $16,000 cash inflow 
B) $16,000 cash outflow 
C) $40,000 cash inflow 
D) $216,000 cash inflow 
A) $16,000 cash inflow 
B) $16,000 cash outflow 
C) $40,000 cash inflow 
D) $216,000 cash inflow

Question 17

An initial investment of $270,000 is expected to generate $140,000 in annual cost savings over the asset's expected 3-year life.Assume straight-line depreciation and ignore income taxes.The payback period is _____.

Accepted Answer

A) 0.75 years 
B) 3.00 years 
C) 1.93 years 
D) 2.40 years 
A) 0.75 years 
B) 3.00 years 
C) 1.93 years 
D) 2.40 years

Question 18

Maryanne Company is contemplating acquiring one of the following machines: $\begin{array}{lrr}&\text { Machine Y }&\text { Machine Z }\
\text { Initial investment } & \$ 180,000 & \$ 225,000 \
\text { Additional annual: } \
\text { Revenues } 
\quad \$ 90,000 & \$ 150,000\
{\text { Cash expenses }} & \$ 25,000 & \$ 85,000 \
\text { Terminal salvage value } & -0- & -0- \
\text { Estimated useful life } & 5 \text { years } & 5 \text { years } \
\begin{array}{l}
\text { Minimum desired rate } \
\text { of return }
\end{array} & 14 \% & 14 \%
\end{array}$ Assume straight-line depreciation and ignore income taxes.
Required:
Calculate the net-present value for both machines and choose the best alternative.

Accepted Answer

3.4331 is the present value factor for a

Question 19

Below are two potential investment alternatives: $\begin{array}{lrr}&D&F\
\text { Initial capital investment } & \$ 180,000 & \$ 270,000 \
\text { Estimated useful life } & 3 \mathrm{yrs} & 3 \mathrm{yrs} \text {. } \
\text { Estimated terminal salvage value } & -0- & -0 \text { - } \
\text { Estimated annual savings in cash } & & \
\quad \text { operating costs } & \$ 80,000 & \$ 120,000 \
\text { Minimum desired rate of return } & 10 \% & 12 \%
\end{array}$ Assume straight-line depreciation in all computations, and ignore income taxes.The net-present value in investment A is _____.

Accepted Answer

A) $18,952 
B) $123,652) 
C) $75,000 
D) $186,518 
A) $18,952 
B) $123,652) 
C) $75,000 
D) $186,518

Question 20

When choosing among several investments _____.

Accepted Answer

A) the one with the greatest net present value is the least desirable 
B) the one with the largest positive present value should be chosen 
C) risk should not be a factor 
D) the cost of capital is irrelevant 
A) the one with the greatest net present value is the least desirable 
B) the one with the largest positive present value should be chosen 
C) risk should not be a factor 
D) the cost of capital is irrelevant

When choosing among several investments, managers should pick the one with the lowest net present value.

A good rule of thumb in tax planning is to recognize taxable income sooner rather than later.

The more sensitive to change a project is, the riskier it is.

Depreciating an asset is a cash flow.

A 5-year depreciation period usually means that _____.

A five-year MACRS asset that cost $50,000 with zero terminal value was sold at the end of its useful life for $20,000.The tax rate is 20%._____ is the net after-tax cash inflow resulting from the transaction.

The time it will take to recoup, in the form of cash inflows from operations, the initial dollars invested in a project is known as the _____.

Federal income taxes are based on the value of a company's assets.

Under the NPV method, the higher the risk of a project, the lower the desired rate of return.

_____ is are) not a relevant cash inflow or cash outflow.

_____ shows the financial consequences that would occur if actual cash flows differ from expected cash flows.

The tax effect of a loss on disposal

A follow-up evaluation of capital-budgeting decisions is called a postaudit.

The payback model measures profitability as well as how quickly investment dollars may be recouped.

The total project approach can be used to compare any number of projects.

An asset with a book value of $200,000 is sold at a loss before taxes are considered) of $40,000.If the applicable tax rate is 40%, _____ is the tax effect of the loss.

An initial investment of $270,000 is expected to generate $140,000 in annual cost savings over the asset's expected 3-year life.Assume straight-line depreciation and ignore income taxes.The payback period is _____.

When choosing among several investments _____.

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

When choosing among several investments, managers should pick the one with the lowest net present value.

A good rule of thumb in tax planning is to recognize taxable income sooner rather than later.

The more sensitive to change a project is, the riskier it is.

Depreciating an asset is a cash flow.

A 5-year depreciation period usually means that _____.

A five-year MACRS asset that cost $50,000 with zero terminal value was sold at the end of its useful life for $20,000.The tax rate is 20%._____ is the net after-tax cash inflow resulting from the transaction.

The time it will take to recoup, in the form of cash inflows from operations, the initial dollars invested in a project is known as the _____.

Federal income taxes are based on the value of a company's assets.

Under the NPV method, the higher the risk of a project, the lower the desired rate of return.

_____ is are) not a relevant cash inflow or cash outflow.

_____ shows the financial consequences that would occur if actual cash flows differ from expected cash flows.

The tax effect of a loss on disposal

A follow-up evaluation of capital-budgeting decisions is called a postaudit.

The payback model measures profitability as well as how quickly investment dollars may be recouped.

The total project approach can be used to compare any number of projects.

An asset with a book value of $200,000 is sold at a loss before taxes are considered) of $40,000.If the applicable tax rate is 40%, _____ is the tax effect of the loss.

An initial investment of $270,000 is expected to generate $140,000 in annual cost savings over the asset's expected 3-year life.Assume straight-line depreciation and ignore income taxes.The payback period is _____.

When choosing among several investments _____.

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