Question 1

The payback period is the time required for a company to recover its initial investment.

Accepted Answer

A) True 
 B)False  True

Question 2

Discounted cash flows are used by discounting models which are future cash flows expressed in terms of their present value.

Accepted Answer

A) True 
 B)False  True

Question 3

Vociferous Company is considering the purchase of production equipment that costs $800,000. The equipment is expected to generate an annual cash flow of $250,000 and have a useful life of five years with no salvage value. The firm's cost of capital is 12 percent. The straight-line method with no mid-year convention is used. Ignoring income taxes, the net present value of the project is

Accepted Answer

A) $80,960. 
B) $97,250. 
C) $108,900. 
D) $101,250. 
A) $80,960. 
B) $97,250. 
C) $108,900. 
D) $101,250. D

Question 4

Clemente Company is considering the purchase of a new machine for $160,000. The machine would generate an annual cash flow before depreciation and taxes of $62,588 for four years. At the end of four years, the machine would have no salvage value. The company's cost of capital is 12 percent. The company uses straight-line depreciation with no mid-year convention and has a 40 percent tax rate. What is the net present value for the machine?

Accepted Answer

A) ($45,952) 
B) $162,640 
C) $30,080 
D) $2,640 
A) ($45,952) 
B) $162,640 
C) $30,080 
D) $2,640

Question 5

Ursula Company is considering the purchase of a new machine for $160,000. The machine would generate an annual cash flow before depreciation and taxes of $62,588 for four years. At the end of four years, the machine would have no salvage value. The company's cost of capital is 12 percent. The company uses straight-line depreciation with no mid-year convention and has a 40 percent tax rate. What is the internal rate of return for the machine rounded to the nearest percent?

Accepted Answer

A) below 12% 
B) between 16 and 18% 
C) between 14 and 16% 
D) between 12 and 14% 
A) below 12% 
B) between 16 and 18% 
C) between 14 and 16% 
D) between 12 and 14%

Question 6

Monocle Corporation is considering an investment in equipment for $50,000. Data related to the investment is as follows: $$\begin{array}{l}\begin{array} { c c } 
&\text { Cash Flow before }\

\text { Year } & \text { Depreciation and Taxes } \
\hline 1 & \$ 25,000 \
2 & 25,000 \
3 & 25,000 \
4 & 25,000
\end{array}
\end{array}$$ Monocle uses the straight-line method of depreciation with no mid-year convention. In addition, its tax rate is 35 percent and the life of the equipment is four years with no salvage value. Cost of capital is 12 percent. What is the annual cash flow for Year 1?

Accepted Answer

A) $15,375 
B) $20,625 
C) $25,625 
D) $6,000 
A) $15,375 
B) $20,625 
C) $25,625 
D) $6,000

Question 7

The following information pertains to an investment by the Town of Sutton: $$\begin{array} { l r } 
\text { Investment } & \$ 140,000 \
\text { Annual revenues } & \$ 96,000 \
\text { Annual variable costs } & \$ 32,000 \
\text { Annual fixed out-of-pocket costs } & \$ 20,000 \
\text { Salvage value } & \$ 12,000 \
\text { Discount rate } & 12 \% \
\text { Expected life of project } & 8 \text { years }
\end{array}$$ Ignore income taxes. The present value of the salvage value (rounded) is

Accepted Answer

A) $5,738. 
B) $4,848. 
C) $6,228. 
D) $6,448. 
A) $5,738. 
B) $4,848. 
C) $6,228. 
D) $6,448.

Question 8

Marion Dexter Company is evaluating a proposal to purchase a new machine that would cost $100,000 and have a salvage value of $10,000 in four years. It would provide annual operating cash savings of $10,000, as follows: $\begin{array}{lrr}&\text { Old Machine}&\text {  New Machine }\
\text { Salaries } & \$ 40,000 & \$ 36,000 \
\text { Supplies } & 7,000 & 5,000 \
\text { Maintenance } & {9,000}&{5,000} \
\text { Total } & \$ 56,000 & \$ 46,000
\end{array}$ 
If the new machine is purchased, the old machine will be sold for its current salvage value of $20,000. If the new machine is not purchased, the old machine will be disposed of in four years at a predicted salvage value of $2,000. The old machine's present book value is $40,000. If kept, in one year the old machine will require repairs predicted
to cost $35,000. Marion Dexter's cost of capital is 14 percent.
Required:
Should the new machine be purchased? Why or why not?

Accepted Answer

@#IMG-DLM& Negative net present value in

Question 9

Projects that if accepted or rejected do NOT affect the cash flows of projects are called:

Accepted Answer

A) Dependent projects 
B) Mutually exclusive projects 
C) Independent projects 
D) Both b and c 
A) Dependent projects 
B) Mutually exclusive projects 
C) Independent projects 
D) Both b and c

Question 10

The accounting rate of return on original investment is calculated as

Accepted Answer

A) original investment/net income. 
B) net income/debt. 
C) average income/original investment. 
D) assets/debt. 
A) original investment/net income. 
B) net income/debt. 
C) average income/original investment. 
D) assets/debt.

Question 11

Under the current tax law, an asset that is classified as 7-year property and has a cost of $400,000 would result in a depreciation deduction in Year 3 of

Accepted Answer

A) $97,920. 
B) $69,960. 
C) $66,667. 
D) $57,140. 
A) $97,920. 
B) $69,960. 
C) $66,667. 
D) $57,140.

Question 12

The present value of $10,000 to be received each year for ten years and earning a 14 percent return (rounded) is

Accepted Answer

A) $11,600. 
B) $26,000. 
C) $52,160. 
D) $52,436. 
A) $11,600. 
B) $26,000. 
C) $52,160. 
D) $52,436.

Question 13

The __________ rate of return uses income instead of cash flows.

Accepted Answer

The answer of The __________ rate of return uses income...

Question 14

A postaudit compares

Accepted Answer

A) estimated benefits and costs with budgeted benefits and costs. 
B) estimated benefits with estimated costs. 
C) actual benefits with actual costs. 
D) actual benefits and costs with estimated benefits and costs. 
A) estimated benefits and costs with budgeted benefits and costs. 
B) estimated benefits with estimated costs. 
C) actual benefits with actual costs. 
D) actual benefits and costs with estimated benefits and costs.

Question 15

A capital investment project requires an investment of $100,000 and has an expected life of four years. Annual cash flows at the end of each year are expected to be as follows: $$\begin{array} { c c } 
\text { Year } & \text { Amount } \
1 & \$ 40,000 \
2 & \$ 48,000 \
3 & \$ 76,000 \
4 & \$ 56,000
\end{array}$$ Ignoring income taxes, the net present value of the project using a 8 percent discount rate is

Accepted Answer

A) $20,320 
B) $49,680 
C) ($49,680) 
D) ($20,320) 
A) $20,320 
B) $49,680 
C) ($49,680) 
D) ($20,320)

Question 16

Excellent Manufacturing Company is considering the following investment proposal: $$\begin{array} { l l } 
\text { Original investment } & \$ 15,000 \
\text { Operations (per year for four years): } &  \
\text { Cash receipts } &\$ 10,550  \
\text { Cash expenditures } &\$ 6,200  \
\text { Salvage value of equipment after three years } &\$ 1,200 \
\text { Discount rate } &9 \% 
\end{array}$$ The firm uses the straight-line method of depreciation with no mid-year convention. What is the payback period in years approximated to two decimal points, assuming no taxes are paid?

Accepted Answer

A) 2.38 years 
B) 1.82 years 
C) 3.45 years 
D) 3.21 years 
A) 2.38 years 
B) 1.82 years 
C) 3.45 years 
D) 3.21 years

Question 17

In today's markets, long-term investments in technology and pollution prevention can provide significant competitive advantages.

Accepted Answer

A) True 
 B)False

Question 18

MakeitRite Company is considering the purchase of a new machine for $80,000. The machine would generate an annual cash flow before depreciation and taxes of $28,778 for five years. At the end of five years, the machine would have no salvage value. The company's cost of capital is 12 percent. The company uses straight-line depreciation with no mid-year convention and has a 40 percent tax rate. What is the net present value for the machine?

Accepted Answer

A) $-0- 
B) $5,318 
C) $85,318 
D) $23,744 
A) $-0- 
B) $5,318 
C) $85,318 
D) $23,744

Question 19

The __________ rate of return sets the present value of cash inflows equal to the present value of a project's cost.

Accepted Answer

The answer of The __________ rate of return sets the...

Question 20

The required __________ is used to calculate the present value of future cash flows.

Accepted Answer

The answer of The required __________ is used to calculate...

The payback period is the time required for a company to recover its initial investment.

Discounted cash flows are used by discounting models which are future cash flows expressed in terms of their present value.

Projects that if accepted or rejected do NOT affect the cash flows of projects are called:

The accounting rate of return on original investment is calculated as

Under the current tax law, an asset that is classified as 7-year property and has a cost of $400,000 would result in a depreciation deduction in Year 3 of

The present value of $10,000 to be received each year for ten years and earning a 14 percent return (rounded) is

The __________ rate of return uses income instead of cash flows.

A postaudit compares

In today's markets, long-term investments in technology and pollution prevention can provide significant competitive advantages.

The __________ rate of return sets the present value of cash inflows equal to the present value of a project's cost.

The required __________ is used to calculate the present value of future cash flows.

Introduction to Cost Management

Basic Cost Management Concepts

Cost Behavior

Activity-Based Costing

Product and Service Costing: Job-Order System

Process Costing

Allocating Costs of Support Departments and Joint Products

Budgeting for Planning and Control

Standard Costing: a Functional-Based Control Approach

Decentralization: Responsibility Accounting, Performance

Strategic Cost Management

Activity-Based Management

The Balanced Scorecard: Strategic-Based Control

Quality and Environmental Cost Management

Lean Accounting and Productivity Measurement

Cost-Volume-Profit Analysis

Activity Resource Usage Model and Tactical Decision Making

Pricing and Profitability Analysis

Inventory Management: Economic Order Quantity, Jit, and the Theory of Constraints

Filters

Exam 19: Capital Investment

The payback period is the time required for a company to recover its initial investment.

Discounted cash flows are used by discounting models which are future cash flows expressed in terms of their present value.

Projects that if accepted or rejected do NOT affect the cash flows of projects are called:

The accounting rate of return on original investment is calculated as

Under the current tax law, an asset that is classified as 7-year property and has a cost of $400,000 would result in a depreciation deduction in Year 3 of

The present value of $10,000 to be received each year for ten years and earning a 14 percent return (rounded) is

The __________ rate of return uses income instead of cash flows.

A postaudit compares

In today's markets, long-term investments in technology and pollution prevention can provide significant competitive advantages.

The __________ rate of return sets the present value of cash inflows equal to the present value of a project's cost.

The required __________ is used to calculate the present value of future cash flows.

Introduction to Cost Management

Basic Cost Management Concepts

Cost Behavior

Activity-Based Costing

Product and Service Costing: Job-Order System

Process Costing

Allocating Costs of Support Departments and Joint Products

Budgeting for Planning and Control

Standard Costing: a Functional-Based Control Approach

Decentralization: Responsibility Accounting, Performance

Strategic Cost Management

Activity-Based Management

The Balanced Scorecard: Strategic-Based Control

Quality and Environmental Cost Management

Lean Accounting and Productivity Measurement

Cost-Volume-Profit Analysis

Activity Resource Usage Model and Tactical Decision Making

Pricing and Profitability Analysis

Inventory Management: Economic Order Quantity, Jit, and the Theory of Constraints

Filters