Question 1

A depreciation deduction lowers a company's tax liability.

Accepted Answer

A) True 
 B)False

Question 2

Identify which one of the following is a reason to study a simpler model such as the payback method.

Accepted Answer

A) The payback method is the most popular method of capital budgeting. 
B) Simpler models are more accurate because they require less estimation. 
C) Simpler models might provide some useful information to supplement the discounted-cash-flows analysis. 
D) Simpler models are conceptually superior to discounted-cash-flows analysis. 
A) The payback method is the most popular method of capital budgeting. 
B) Simpler models are more accurate because they require less estimation. 
C) Simpler models might provide some useful information to supplement the discounted-cash-flows analysis. 
D) Simpler models are conceptually superior to discounted-cash-flows analysis.

Question 3

Because a loss on the sale of an asset is tax deductible, companies often benefit more from losses than from gains.

Accepted Answer

A) True 
 B)False

Question 4

LeBron Corporation is considering the purchase of an asset for $400,000.It is expected that the product manufactured by the equipment can be sold for $150,000 and that there will be annual production costs, exclusive of depreciation, equal to $80,000.The asset will have a 10-year life, no terminal salvage value, and straight-line depreciation will be used for tax purposes.The tax rate applicable to LeBron Corporation is 30%.If the equipment is purchased, the total net after-tax effect on cash flows over the entire life of the investment is _____.

Accepted Answer

A) $610,000 inflow 
B) $210,000 outflow 
C) $210,000 inflow 
D) $90,000 inflow 
A) $610,000 inflow 
B) $210,000 outflow 
C) $210,000 inflow 
D) $90,000 inflow

Question 5

When comparing projects using the total project approach, a manager should choose the _____.

Accepted Answer

A) project with the largest positive net present value 
B) project with the largest negative net present value 
C) first project considered if the present value is positive 
D) second project considered if the present value positive 
A) project with the largest positive net present value 
B) project with the largest negative net present value 
C) first project considered if the present value is positive 
D) second project considered if the present value positive

Question 6

An accountant's main function in capital budgeting is to _____.

Accepted Answer

A) identify potential investments 
B) choose which investments to make 
C) gather and interpret information 
D) all of these answers are correct. 
A) identify potential investments 
B) choose which investments to make 
C) gather and interpret information 
D) all of these answers are correct.

Question 7

George has offered to give you $10,000 today or $3,000 per year for the next five years.If the cost of capital is 10%, Harvey should _____.

Accepted Answer

A) choose $10,000 today 
B) choose $3,000 for five years 
C) choose either because the results will be the same 
D) do nothing.Harvey cannot make a decision with the above information. 
A) choose $10,000 today 
B) choose $3,000 for five years 
C) choose either because the results will be the same 
D) do nothing.Harvey cannot make a decision with the above information.

Question 8

Identify which of the following statements regarding the payback model is false.

Accepted Answer

A) The payback model measures how quickly investment dollars may be recouped. 
B) The payback model measures profitability. 
C) A project with a shorter payback time is not necessarily preferable to one with a longer payback time. 
D) The payback model provides a rough estimate of risk. 
A) The payback model measures how quickly investment dollars may be recouped. 
B) The payback model measures profitability. 
C) A project with a shorter payback time is not necessarily preferable to one with a longer payback time. 
D) The payback model provides a rough estimate of risk.

Question 9

When comparing projects using the differential approach, a manager should choose the _____.

Accepted Answer

A) project with the largest positive net present value 
B) project with the largest negative net present value 
C) first project considered if the present value is positive 
D) second project considered if the present value positive 
A) project with the largest positive net present value 
B) project with the largest negative net present value 
C) first project considered if the present value is positive 
D) second project considered if the present value positive

Question 10

Ajax Company pays 15% on the first $50,000 of pretax income and 28% on any additional pretax income.Ajax Company currently earns $52,000.An investment under consideration is expected to add $20,000 in pretax income._____ is the rate on the additional income.

Accepted Answer

A) 15% 
B) 28% 
C) 22.5% 
D) None of these answers is correct 
A) 15% 
B) 28% 
C) 22.5% 
D) None of these answers is correct

Question 11

_____ is a cash inflow.

Accepted Answer

A) Purchase price of an asset 
B) Interest expense 
C) Revenue generated by a project 
D) Depreciation expense 
A) Purchase price of an asset 
B) Interest expense 
C) Revenue generated by a project 
D) Depreciation expense

Question 12

"Nonprofit organizations do not use DCF because their cost of capital is zero." Do you
agree? Explain.

Accepted Answer

No.The cost of capital for non

Question 13

The "break-even" cash flow is the point at which _____.

Accepted Answer

A) the present value of variable cost equals the present value of fixed costs 
B) the present value of the cash inflows equals the present value of the cash outflows 
C) the hurdle rate equals the market rate 
D) total cash revenues equal the total cash expenses 
A) the present value of variable cost equals the present value of fixed costs 
B) the present value of the cash inflows equals the present value of the cash outflows 
C) the hurdle rate equals the market rate 
D) total cash revenues equal the total cash expenses

Question 14

A discounted-cash-flow approach to capital budgeting that discounts all expected future cash flows to the present using a minimum desired rate of return

Accepted Answer

Net-presen

Question 15

Accelerated depreciation _____.

Accepted Answer

A) reduces an asset's estimated useful life 
B) charges a larger proportion of an asset's cost to the earlier years 
C) charges a larger proportion of an asset's cost to the later years 
D) increases an asset's recovery period 
A) reduces an asset's estimated useful life 
B) charges a larger proportion of an asset's cost to the earlier years 
C) charges a larger proportion of an asset's cost to the later years 
D) increases an asset's recovery period

A depreciation deduction lowers a company's tax liability.

Identify which one of the following is a reason to study a simpler model such as the payback method.

Because a loss on the sale of an asset is tax deductible, companies often benefit more from losses than from gains.

When comparing projects using the total project approach, a manager should choose the _____.

An accountant's main function in capital budgeting is to _____.

George has offered to give you $10,000 today or $3,000 per year for the next five years.If the cost of capital is 10%, Harvey should _____.

Identify which of the following statements regarding the payback model is false.

When comparing projects using the differential approach, a manager should choose the _____.

Ajax Company pays 15% on the first $50,000 of pretax income and 28% on any additional pretax income.Ajax Company currently earns $52,000.An investment under consideration is expected to add $20,000 in pretax income._____ is the rate on the additional income.

_____ is a cash inflow.

"Nonprofit organizations do not use DCF because their cost of capital is zero." Do you agree? Explain.

The "break-even" cash flow is the point at which _____.

A discounted-cash-flow approach to capital budgeting that discounts all expected future cash flows to the present using a minimum desired rate of return

Accelerated depreciation _____.

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

A depreciation deduction lowers a company's tax liability.

Identify which one of the following is a reason to study a simpler model such as the payback method.

Because a loss on the sale of an asset is tax deductible, companies often benefit more from losses than from gains.

When comparing projects using the total project approach, a manager should choose the _____.

An accountant's main function in capital budgeting is to _____.

George has offered to give you $10,000 today or $3,000 per year for the next five years.If the cost of capital is 10%, Harvey should _____.

Identify which of the following statements regarding the payback model is false.

When comparing projects using the differential approach, a manager should choose the _____.

Ajax Company pays 15% on the first $50,000 of pretax income and 28% on any additional pretax income.Ajax Company currently earns $52,000.An investment under consideration is expected to add $20,000 in pretax income._____ is the rate on the additional income.

_____ is a cash inflow.

"Nonprofit organizations do not use DCF because their cost of capital is zero." Do you agree? Explain.

The "break-even" cash flow is the point at which _____.

A discounted-cash-flow approach to capital budgeting that discounts all expected future cash flows to the present using a minimum desired rate of return

Accelerated depreciation _____.

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