Question 1

The cash payback technique is a quick way to calculate a project's net present value.

Accepted Answer

A) True 
 B)False

Question 2

The capital budgeting method that allows comparison of the relative desirability of projects that require differing initial investments is the

Accepted Answer

A) cash payback method. 
B) internal rate of return method. 
C) net present value method. 
D) profitability index. 
A) cash payback method. 
B) internal rate of return method. 
C) net present value method. 
D) profitability index.

Question 3

Nance Company is considering buying a machine for $90,000 with an estimated life of ten years and no salvage value. The straight-line method of depreciation will be used. The machine is expected to generate net income of $3,000 each year. The cash payback on this investment is

Accepted Answer

A) 15 years. 
B) 10 years. 
C) 7.5 years. 
D) 6 years. 
A) 15 years. 
B) 10 years. 
C) 7.5 years. 
D) 6 years.

Question 4

Disadvantages of the annual rate of return method include all of the following except that

Accepted Answer

A) it relies on accrual accounting numbers instead of actual cash flows. 
B) it does not consider the time value of money. 
C) no consideration is given as to when the cash inflows occur. 
D) management is unfamiliar with the information used in the computation. 
A) it relies on accrual accounting numbers instead of actual cash flows. 
B) it does not consider the time value of money. 
C) no consideration is given as to when the cash inflows occur. 
D) management is unfamiliar with the information used in the computation.

Question 5

The internal rate of return factor is also the

Accepted Answer

A) annual rate of return. 
B) profitability index. 
C) cash payback period. 
D) present value factor for a single amount. 
A) annual rate of return. 
B) profitability index. 
C) cash payback period. 
D) present value factor for a single amount.

Question 6

Garza Company is considering buying equipment for $320,000 with a useful life of five years and an estimated salvage value of $16,000. If annual expected income is $28,000, the denominator in computing the annual rate of return is

Accepted Answer

A) $320,000. 
B) $160,000. 
C) $168,000. 
D) $336,000. 
A) $320,000. 
B) $160,000. 
C) $168,000. 
D) $336,000.

Question 7

Use the following table, $\text { Present Value of an Annuity of } 1$
$\begin{array}{lrrr}\text { Period } & 8 \% & 9 \% & 10 \%\
1 & .926 & .917 & .909 \
2 & 1.783 & 1.759 & 1.736 \
3 & 2.577 & 2.531 & 2.487
\end{array}$ A company has a minimum required rate of return of 9%. It is considering investing in a project which costs $350,000 and is expected to generate cash inflows of $140,000 at the end of each year for three years. The net present value of this project is

Accepted Answer

A) $354,340. 
B) $70,000. 
C) $35,436. 
D) $4,340. 
A) $354,340. 
B) $70,000. 
C) $35,436. 
D) $4,340.

Question 8

A disadvantage of the cash payback technique is that it

Accepted Answer

A) ignores obsolescence factors. 
B) ignores the cost of an investment. 
C) is complicated to use. 
D) ignores the time value of money. 
A) ignores obsolescence factors. 
B) ignores the cost of an investment. 
C) is complicated to use. 
D) ignores the time value of money.

Question 9

A company projects an increase in net income of $30,000 each year for the next five years if it invests $300,000 in new equipment. The equipment has a five-year life and an estimated salvage value of $100,000. What is the annual rate of return on this investment?

Accepted Answer

A) 10% 
B) 15% 
C) 20% 
D) 25% 
A) 10% 
B) 15% 
C) 20% 
D) 25%

Question 10

The primary capital budgeting method that uses discounted cash flow techniques is the

Accepted Answer

A) net present value method. 
B) cash payback technique. 
C) annual rate of return method. 
D) profitability index method. 
A) net present value method. 
B) cash payback technique. 
C) annual rate of return method. 
D) profitability index method.

Question 11

Miles, Inc. is considering the purchase of a new machine for $600,000 that has an estimated useful life of 5 years and no salvage value. The machine will generate net annual cash flows of $105,000. It is believed that the new machine will reduce downtime because of its reliability. Assume the discount rate is 8%. In order to make the project acceptable, the reduction in downtime must be worth $\begin{array}{lrr}\text { Year } & \text { Present Value } & \text { PV of an Annuity } \
&\text { of } 1 \text { at } 8 \% & \text { of } 1 \text { at } 8 \%\
1 & .926 & .926 \
2 & .857 & 1.783 \
3 & .794 & 2.577 \
4 & .735 & 3.312 \
5 & .681 & 3.993
\end{array}$

Accepted Answer

A) $23,958 per year. 
B) $49,662 per year. 
C) $18,264 per year. 
D) $45,263 per year. 
A) $23,958 per year. 
B) $49,662 per year. 
C) $18,264 per year. 
D) $45,263 per year.

Question 12

Use the following table for questions .  
-A company has a minimum required rate of return of 8%. It is considering investing in a project that costs $91,116 and is expected to generate cash inflows of $36,000 each year for three years. The approximate internal rate of return on this project is

Accepted Answer

A) 8%. 
B) 9%. 
C) 10%. 
D) less than the required 8%. 
A) 8%. 
B) 9%. 
C) 10%. 
D) less than the required 8%.

Question 13

Use the following information for questions 
A company is considering purchasing factory equipment that costs $480,000 and is estimated to have no salvage value at the end of its 8-year useful life. If the equipment is purchased, annual revenues are expected to be $135,000 and annual operating expenses exclusive of depreciation expense are expected to be $39,000. The straight-line method of depreciation would be used.
-If the equipment is purchased, the annual rate of return expected on this equipment is

Accepted Answer

A) 40.0%. 
B) 7.5%. 
C) 15.0%. 
D) 20.0%. 
A) 40.0%. 
B) 7.5%. 
C) 15.0%. 
D) 20.0%.

Question 14

If a project's profitability index is greater than 1, then the

Accepted Answer

A) project should always be accepted. 
B) project's net present value is negative. 
C) project's internal rate of return is less than the discount rate. 
D) project should be accepted if funds are available. 
A) project should always be accepted. 
B) project's net present value is negative. 
C) project's internal rate of return is less than the discount rate. 
D) project should be accepted if funds are available.

Question 15

Using the net present value method, a net present value of zero indicates that the project would not be acceptable.

Accepted Answer

A) True 
 B)False

Question 16

Using the internal rate of return method, a project is rejected when the rate of return is greater than or equal to the required rate of return.

Accepted Answer

A) True 
 B)False

Question 17

All of the following statements about the internal rate of return method are correct except that it

Accepted Answer

A) recognizes the time value of money. 
B) is widely used in practice. 
C) is easy to interpret. 
D) can be used only when the cash inflows are equal. 
A) recognizes the time value of money. 
B) is widely used in practice. 
C) is easy to interpret. 
D) can be used only when the cash inflows are equal.

Question 18

Use the following information for questions 
Carr Company is considering two capital investment proposals. Estimates regarding each project are provided below:  
-The annual rate of return for Project Soup is

Accepted Answer

A) 7.5%. 
B) 15.0%. 
C) 27.5%. 
D) 55%. 
A) 7.5%. 
B) 15.0%. 
C) 27.5%. 
D) 55%.

Question 19

The cash payback technique

Accepted Answer

A) considers cash flows over the life of a project. 
B) cannot be used with uneven cash flows. 
C) is superior to the net present value method. 
D) may be useful as an initial screening device. 
A) considers cash flows over the life of a project. 
B) cannot be used with uneven cash flows. 
C) is superior to the net present value method. 
D) may be useful as an initial screening device.

Question 20

If a project has a salvage value greater than zero, the salvage value will

Accepted Answer

A) have no effect on the net present value. 
B) increase the net present value. 
C) increase the payback period. 
D) decrease the net present value. 
A) have no effect on the net present value. 
B) increase the net present value. 
C) increase the payback period. 
D) decrease the net present value.

The cash payback technique is a quick way to calculate a project's net present value.

The capital budgeting method that allows comparison of the relative desirability of projects that require differing initial investments is the

Nance Company is considering buying a machine for $90,000 with an estimated life of ten years and no salvage value. The straight-line method of depreciation will be used. The machine is expected to generate net income of $3,000 each year. The cash payback on this investment is

Disadvantages of the annual rate of return method include all of the following except that

The internal rate of return factor is also the

Garza Company is considering buying equipment for $320,000 with a useful life of five years and an estimated salvage value of $16,000. If annual expected income is $28,000, the denominator in computing the annual rate of return is

A disadvantage of the cash payback technique is that it

A company projects an increase in net income of $30,000 each year for the next five years if it invests $300,000 in new equipment. The equipment has a five-year life and an estimated salvage value of $100,000. What is the annual rate of return on this investment?

The primary capital budgeting method that uses discounted cash flow techniques is the

Use the following table for questions . -A company has a minimum required rate of return of 8%. It is considering investing in a project that costs $91,116 and is expected to generate cash inflows of $36,000 each year for three years. The approximate internal rate of return on this project is

If a project's profitability index is greater than 1, then the

Using the net present value method, a net present value of zero indicates that the project would not be acceptable.

Using the internal rate of return method, a project is rejected when the rate of return is greater than or equal to the required rate of return.

All of the following statements about the internal rate of return method are correct except that it

Use the following information for questions Carr Company is considering two capital investment proposals. Estimates regarding each project are provided below: -The annual rate of return for Project Soup is

The cash payback technique

If a project has a salvage value greater than zero, the salvage value will

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Merchandising Operations and the Multiple-Step Income Statement

Reporting and Analyzing Inventory

Fraud, Internal Control, and Cash

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Liabilities

Reporting and Analyzing Stockholders Equity

Statement of Cash Flows

Financial Analysis: The Big Picture

Managerial Accounting

Job Order Costing

Process Costing

Activity-Based Costing

Cost-Volume-Profit

Cost-Volume-Profit Analysis: Additional Issues

Incremental Analysis

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Filters

Exam 23: Planning for Capital Investments

The cash payback technique is a quick way to calculate a project's net present value.

The capital budgeting method that allows comparison of the relative desirability of projects that require differing initial investments is the

Nance Company is considering buying a machine for $90,000 with an estimated life of ten years and no salvage value. The straight-line method of depreciation will be used. The machine is expected to generate net income of $3,000 each year. The cash payback on this investment is

Disadvantages of the annual rate of return method include all of the following except that

The internal rate of return factor is also the

Garza Company is considering buying equipment for $320,000 with a useful life of five years and an estimated salvage value of $16,000. If annual expected income is $28,000, the denominator in computing the annual rate of return is

A disadvantage of the cash payback technique is that it

A company projects an increase in net income of $30,000 each year for the next five years if it invests $300,000 in new equipment. The equipment has a five-year life and an estimated salvage value of $100,000. What is the annual rate of return on this investment?

The primary capital budgeting method that uses discounted cash flow techniques is the

Use the following table for questions . -A company has a minimum required rate of return of 8%. It is considering investing in a project that costs $91,116 and is expected to generate cash inflows of $36,000 each year for three years. The approximate internal rate of return on this project is

If a project's profitability index is greater than 1, then the

Using the net present value method, a net present value of zero indicates that the project would not be acceptable.

Using the internal rate of return method, a project is rejected when the rate of return is greater than or equal to the required rate of return.

All of the following statements about the internal rate of return method are correct except that it

Use the following information for questions Carr Company is considering two capital investment proposals. Estimates regarding each project are provided below: -The annual rate of return for Project Soup is

The cash payback technique

If a project has a salvage value greater than zero, the salvage value will

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Merchandising Operations and the Multiple-Step Income Statement

Reporting and Analyzing Inventory

Fraud, Internal Control, and Cash

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Liabilities

Reporting and Analyzing Stockholders Equity

Statement of Cash Flows

Financial Analysis: The Big Picture

Managerial Accounting

Job Order Costing

Process Costing

Activity-Based Costing

Cost-Volume-Profit

Cost-Volume-Profit Analysis: Additional Issues

Incremental Analysis

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Filters