Question 1

Under United States tax laws, a company may estimate the useful life of an asset for depreciation purposes.

Accepted Answer

A) True 
 B)False

Question 2

If IRR > minimum desired rate of return, then NPV > 0.

Accepted Answer

A) True 
 B)False

Question 3

_____ does not require an explicit adjustment for inflation.

Accepted Answer

A) The nominal rate 
B) The predicted operating cash flows 
C) The tax effect of depreciation 
D) None of these answers is correct 
A) The nominal rate 
B) The predicted operating cash flows 
C) The tax effect of depreciation 
D) None of these answers is correct

Question 4

One purpose of a postaudit is to provide information for improving future predictions of cash flows.

Accepted Answer

A) True 
 B)False

Question 5

If the IRR is less than the minimum desired rate of return, a project is not desirable.

Accepted Answer

A) True 
 B)False

Question 6

Below are two potential investment alternatives: $\begin{array}{lrr}&S&T\
\text { Initial capital investment } & \$ 180,000 & \$ 270,000 \
\text { Estimated useful life } & 3 \mathrm{yrs} & 3 \mathrm{yrs} \text {. } \
\text { Estimated terminal salvage value } & -0- & -0 \text { - } \
\text { Estimated annual savings in cash } & & \
\quad \text { operating costs } & \$ 75,000 & \$ 150,000 \
\text { Minimum desired rate of return } & 10 \% & 12 \%
\end{array}$ Assume straight-line depreciation in all computations, and ignore income taxes. The net-present value in investment Y is _____.

Accepted Answer

A) $120,000 
B) $90,270 
C) $492) 
D) $184,584 
A) $120,000 
B) $90,270 
C) $492) 
D) $184,584

Question 7

"If DCF approaches are superior to the payback and the accounting rate-of-return
methods, why should we bother to learn the others? All it does is confuse things."
Answer this contention.

Accepted Answer

It is useful to learn the "payback" and

Question 8

The accounting rate-of-return model shows the effects of an investment on an organization's financial statements.

Accepted Answer

A) True 
 B)False

Question 9

Managers may use the payback period as a rough estimate of the riskiness of a project.

Accepted Answer

A) True 
 B)False

Question 10

A company will experience the same total tax savings over the life of an asset, regardless of the method of depreciation used.

Accepted Answer

A) True 
 B)False

Question 11

_____ is not another name for the required rate of return.

Accepted Answer

A) Hurdle rate 
B) Discount rate 
C) Compound rate 
D) Cost of capital 
A) Hurdle rate 
B) Discount rate 
C) Compound rate 
D) Cost of capital

Question 12

_____ is a nondiscounted-cash-flows model that has profitability as an objective.

Accepted Answer

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

Question 13

Vampire Company pays taxes of 15% on their first $20,000 of pretax income, and 30% on any taxable income in excess of $20,000.The average tax rate, if current pretax income is $50,000, is _____.

Accepted Answer

A) 15% 
B) 21% 
C) 24% 
D) 30% 
A) 15% 
B) 21% 
C) 24% 
D) 30%

Question 14

An initial investment of $180,000 is expected to generate $90,000 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) 41.67% 
B) 8.33% 
C) 16.67% 
D) none of these answers is correct 
A) 41.67% 
B) 8.33% 
C) 16.67% 
D) none of these answers is correct

Question 15

A popular approach for comparing two or more alternatives, which can be used for any number of alternatives

Accepted Answer

Total proj

Question 16

The economic life of an asset may exceed the recovery period of the asset.

Accepted Answer

A) True 
 B)False

Question 17

When using the NPV model, it is assumed that capital markets are perfect.

Accepted Answer

A) True 
 B)False

Question 18

_____ is are) a factor which complicates the analysis in capital budgeting.

Accepted Answer

A) Income taxes 
B) Inflation 
C) Mutually exclusive projects 
D) All of these answers are correct 
A) Income taxes 
B) Inflation 
C) Mutually exclusive projects 
D) All of these answers are correct

Question 19

An asset with a book value of $40,000 is sold at a loss before taxes are considered) of $20,000.The applicable tax rate is 20%.The net after-tax cash effect of this transaction is a _____.

Accepted Answer

A) $20,000 cash inflow 
B) $12,000 cash outflow 
C) $48,000 cash inflow 
D) $24,000 cash inflow 
A) $20,000 cash inflow 
B) $12,000 cash outflow 
C) $48,000 cash inflow 
D) $24,000 cash inflow

Question 20

_____ is the decline in the general purchasing power of the monetary unit.

Accepted Answer

A) Inflation 
B) The nominal rate 
C) The payback period 
D) The accounting rate of return 
A) Inflation 
B) The nominal rate 
C) The payback period 
D) The accounting rate of return

Under United States tax laws, a company may estimate the useful life of an asset for depreciation purposes.

If IRR > minimum desired rate of return, then NPV > 0.

_____ does not require an explicit adjustment for inflation.

One purpose of a postaudit is to provide information for improving future predictions of cash flows.

If the IRR is less than the minimum desired rate of return, a project is not desirable.

"If DCF approaches are superior to the payback and the accounting rate-of-return methods, why should we bother to learn the others? All it does is confuse things." Answer this contention.

The accounting rate-of-return model shows the effects of an investment on an organization's financial statements.

Managers may use the payback period as a rough estimate of the riskiness of a project.

A company will experience the same total tax savings over the life of an asset, regardless of the method of depreciation used.

_____ is not another name for the required rate of return.

_____ is a nondiscounted-cash-flows model that has profitability as an objective.

Vampire Company pays taxes of 15% on their first $20,000 of pretax income, and 30% on any taxable income in excess of $20,000.The average tax rate, if current pretax income is $50,000, is _____.

An initial investment of $180,000 is expected to generate $90,000 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 _____.

A popular approach for comparing two or more alternatives, which can be used for any number of alternatives

The economic life of an asset may exceed the recovery period of the asset.

When using the NPV model, it is assumed that capital markets are perfect.

_____ is are) a factor which complicates the analysis in capital budgeting.

An asset with a book value of $40,000 is sold at a loss before taxes are considered) of $20,000.The applicable tax rate is 20%.The net after-tax cash effect of this transaction is a _____.

_____ is the decline in the general purchasing power of the monetary unit.

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

Under United States tax laws, a company may estimate the useful life of an asset for depreciation purposes.

If IRR > minimum desired rate of return, then NPV > 0.

_____ does not require an explicit adjustment for inflation.

One purpose of a postaudit is to provide information for improving future predictions of cash flows.

If the IRR is less than the minimum desired rate of return, a project is not desirable.

"If DCF approaches are superior to the payback and the accounting rate-of-return methods, why should we bother to learn the others? All it does is confuse things." Answer this contention.

The accounting rate-of-return model shows the effects of an investment on an organization's financial statements.

Managers may use the payback period as a rough estimate of the riskiness of a project.

A company will experience the same total tax savings over the life of an asset, regardless of the method of depreciation used.

_____ is not another name for the required rate of return.

_____ is a nondiscounted-cash-flows model that has profitability as an objective.

Vampire Company pays taxes of 15% on their first $20,000 of pretax income, and 30% on any taxable income in excess of $20,000.The average tax rate, if current pretax income is $50,000, is _____.

An initial investment of $180,000 is expected to generate $90,000 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 _____.

A popular approach for comparing two or more alternatives, which can be used for any number of alternatives

The economic life of an asset may exceed the recovery period of the asset.

When using the NPV model, it is assumed that capital markets are perfect.

_____ is are) a factor which complicates the analysis in capital budgeting.

An asset with a book value of $40,000 is sold at a loss before taxes are considered) of $20,000.The applicable tax rate is 20%.The net after-tax cash effect of this transaction is a _____.

_____ is the decline in the general purchasing power of the monetary unit.

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