Question 1

When a capital budgeting project generates a positive net present value, this means that the project earns a return higher than the

Accepted Answer

A) internal rate of return. 
B) annual rate of return. 
C) required rate of return. 
D) profitability index. 
A) internal rate of return. 
B) annual rate of return. 
C) required rate of return. 
D) profitability index.

Question 2

All of the following are involved in the capital budgeting evaluation process except a company's

Accepted Answer

A) board of directors. 
B) capital budgeting committee. 
C) officers. 
D) stockholders. 
A) board of directors. 
B) capital budgeting committee. 
C) officers. 
D) stockholders.

Question 3

A project that cost $75,000 has a useful life of 5 years and a salvage value of $3,000. The internal rate of return is 12% and the annual rate of return is 18%. The amount of the annual net income was

Accepted Answer

A) $7,020. 
B) $6,480. 
C) $4,680. 
D) $4,320. 
A) $7,020. 
B) $6,480. 
C) $4,680. 
D) $4,320.

Question 4

The capital budgeting technique that indicates the profitability of a capital expenditure is the

Accepted Answer

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

Question 5

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

Accepted Answer

A) its net present value is zero. 
B) its net present value is positive. 
C) it should be rejected. 
D) its internal rate of return is greater than the discount rate. 
A) its net present value is zero. 
B) its net present value is positive. 
C) it should be rejected. 
D) its internal rate of return is greater than the discount rate.

Question 6

Companies often assume that the risk element in the discount rate is

Accepted Answer

A) zero. 
B) greater that zero. 
C) less than zero. 
D) known with certainty. 
A) zero. 
B) greater that zero. 
C) less than zero. 
D) known with certainty.

Question 7

Capital expenditure proposals are initially screened by the

Accepted Answer

A) board of directors. 
B) executive committee. 
C) capital budgeting committee. 
D) stockholders. 
A) board of directors. 
B) executive committee. 
C) capital budgeting committee. 
D) stockholders.

Question 8

The internal rate of return factor is equal to the

Accepted Answer

A) capital investment divided by the net cash flows. 
B) present value of net cash flows divided by the capital investment. 
C) present value of net cash flows divided by the profitability index. 
D) capital investment divided by the present value of the net cash flows. 
A) capital investment divided by the net cash flows. 
B) present value of net cash flows divided by the capital investment. 
C) present value of net cash flows divided by the profitability index. 
D) capital investment divided by the present value of the net cash flows.

Question 9

A project has an annual rate of return of 15%. The project cost $120,000, has a 5-year useful life, and no salvage value. Straight-line depreciation is used. The annual net income, exclusive of depreciation, was

Accepted Answer

A) $42,000. 
B) $33,000. 
C) $47,700. 
D) $18,000. 
A) $42,000. 
B) $33,000. 
C) $47,700. 
D) $18,000.

Question 10

If a project has a negative net present value, its profitability index will be

Accepted Answer

A) one. 
B) greater than one. 
C) less than one. 
D) undeterminable. 
A) one. 
B) greater than one. 
C) less than one. 
D) undeterminable.

Question 11

Capital budgeting decisions usually involve large investments and often have a significant impact on a company's future profitability.

Accepted Answer

A) True 
 B)False

Question 12

The capital budgeting decision depends in part on the

Accepted Answer

A) availability of funds. 
B) relationships among proposed projects. 
C) risk associated with a particular project. 
D) All of these answers are correct. 
A) availability of funds. 
B) relationships among proposed projects. 
C) risk associated with a particular project. 
D) All of these answers are correct.

Question 13

The annual rate of return method is based on

Accepted Answer

A) accounting data. 
B) the time value of money data. 
C) market values. 
D) cash flow data. 
A) accounting data. 
B) the time value of money data. 
C) market values. 
D) cash flow data.

Question 14

Use the following information for questions 
Carr Company is considering two capital investment proposals. Estimates regarding each project are provided below:  
-The cash payback period for Project Nuts is

Accepted Answer

A) 13.3 years. 
B) 6.7 years. 
C) 5.0 years. 
D) 4.1 years. 
A) 13.3 years. 
B) 6.7 years. 
C) 5.0 years. 
D) 4.1 years.

Question 15

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 8%. It is considering investing in a project that costs $379,650 and is expected to generate cash inflows of $150,000 each year for three years. The approximate internal rate of return on this project is

Accepted Answer

A) 8%. 
B) 9%. 
C) 10%. 
D) The IRR on this project cannot be approximated. 
A) 8%. 
B) 9%. 
C) 10%. 
D) The IRR on this project cannot be approximated.

Question 16

In capital budgeting, intangible benefits should be

Accepted Answer

A) excluded entirely. 
B) included using optimistic estimated values. 
C) included using conservative estimated values. 
D) included only when benefits are known with certainty. 
A) excluded entirely. 
B) included using optimistic estimated values. 
C) included using conservative estimated values. 
D) included only when benefits are known with certainty.

Question 17

Use the following information for questions 
Cleaners, Inc. is considering purchasing equipment costing $60,000 with a 6-year useful life. The equipment will provide cost savings of $14,600 and will be depreciated straight-line over its useful life with no salvage value. Cleaners requires a 10% rate of return. $\text { Present Value of an Annuity of } 1$
$\begin{array}{lr}
\text { Period }&8\%&9\%&10\%&11\%&12\%&15\%\6&4.623&4.486&4.355&4.231&4.111&3.784
\end{array}$

-What is the approximate internal rate of return for this investment?

Accepted Answer

A) 9% 
B) 10% 
C) 11% 
D) 12% 
A) 9% 
B) 10% 
C) 11% 
D) 12%

Question 18

When the annual cash flows from an investment are unequal, the appropriate table to use is the

Accepted Answer

A) future value of 1 table. 
B) future value of annuity table. 
C) present value of 1 table. 
D) present value of annuity table. 
A) future value of 1 table. 
B) future value of annuity table. 
C) present value of 1 table. 
D) present value of annuity table.

Question 19

The corporate capital budget authorization process consists of how many steps?

Accepted Answer

A) 4 
B) 3 
C) 2 
D) 1 
A) 4 
B) 3 
C) 2 
D) 1

Question 20

Use the following information for questions 
Cleaners, Inc. is considering purchasing equipment costing $60,000 with a 6-year useful life. The equipment will provide cost savings of $14,600 and will be depreciated straight-line over its useful life with no salvage value. Cleaners requires a 10% rate of return. $\text { Present Value of an Annuity of } 1$
$\begin{array}{lr}
\text { Period }&8\%&9\%&10\%&11\%&12\%&15\%\6&4.623&4.486&4.355&4.231&4.111&3.784
\end{array}$

-What is the approximate net present value of this investment?

Accepted Answer

A) $27,600 
B) $3,583 
C) $1,772 
D) $5,496 
A) $27,600 
B) $3,583 
C) $1,772 
D) $5,496

When a capital budgeting project generates a positive net present value, this means that the project earns a return higher than the

All of the following are involved in the capital budgeting evaluation process except a company's

A project that cost $75,000 has a useful life of 5 years and a salvage value of $3,000. The internal rate of return is 12% and the annual rate of return is 18%. The amount of the annual net income was

The capital budgeting technique that indicates the profitability of a capital expenditure is the

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

Companies often assume that the risk element in the discount rate is

Capital expenditure proposals are initially screened by the

The internal rate of return factor is equal to the

A project has an annual rate of return of 15%. The project cost $120,000, has a 5-year useful life, and no salvage value. Straight-line depreciation is used. The annual net income, exclusive of depreciation, was

If a project has a negative net present value, its profitability index will be

Capital budgeting decisions usually involve large investments and often have a significant impact on a company's future profitability.

The capital budgeting decision depends in part on the

The annual rate of return method is based on

Use the following information for questions Carr Company is considering two capital investment proposals. Estimates regarding each project are provided below: -The cash payback period for Project Nuts is

In capital budgeting, intangible benefits should be

When the annual cash flows from an investment are unequal, the appropriate table to use is the

The corporate capital budget authorization process consists of how many steps?

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

When a capital budgeting project generates a positive net present value, this means that the project earns a return higher than the

All of the following are involved in the capital budgeting evaluation process except a company's

A project that cost $75,000 has a useful life of 5 years and a salvage value of $3,000. The internal rate of return is 12% and the annual rate of return is 18%. The amount of the annual net income was

The capital budgeting technique that indicates the profitability of a capital expenditure is the

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

Companies often assume that the risk element in the discount rate is

Capital expenditure proposals are initially screened by the

The internal rate of return factor is equal to the

A project has an annual rate of return of 15%. The project cost $120,000, has a 5-year useful life, and no salvage value. Straight-line depreciation is used. The annual net income, exclusive of depreciation, was

If a project has a negative net present value, its profitability index will be

Capital budgeting decisions usually involve large investments and often have a significant impact on a company's future profitability.

The capital budgeting decision depends in part on the

The annual rate of return method is based on

Use the following information for questions Carr Company is considering two capital investment proposals. Estimates regarding each project are provided below: -The cash payback period for Project Nuts is

In capital budgeting, intangible benefits should be

When the annual cash flows from an investment are unequal, the appropriate table to use is the

The corporate capital budget authorization process consists of how many steps?

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