Canyon Company is considering an investment of $45,000. Data related to the investment are as follows: \[\begin{array} { c c } \text { Year } & \text { Cash Flow } \\ \hline 1 & \$ 15,000 \\ 2 & 18,000 \\ 3 & 22,500 \\ 4 & 30,000 \\ 5 & 15,000 \end{array}\] Cost of capital is 18 percent. What is the net present value of the investment, assuming no taxes are paid?

A) $10,500 B) $55,500 C) $61,366 D) $16,367 A) $10,500 B) $55,500 C) $61,366 D) $16,367

Sansariff Company invests in a new piece of equipment costing $40,000. The equipment is expected to yield the following amounts per year for the equipment's four-year useful life: $\begin{array}{lc} \text { Cash revenues } & \$ 60,000 \\ \text { Cash expenses } & (32,000) \\ \text { Depreciation expenses (straight-line) } & (10,000) \\ \text { Income provided from equipment } & \$ 18,000\\ \text { Cost of capital }&14\% \end{array}$ What is the net present value of this investment in equipment, assuming no taxes are paid?

A) $(4,480) B) $52,452 C) $41,592 D) $81,592 A) $(4,480) B) $52,452 C) $41,592 D) $81,592

CrimsonCompany is considering the purchase of a computerized manufacturing system. The after-tax cash benefits/savings associated with the system are as follows: \[\begin{array} { l r } \text { Decreased waste } & \$ 150,000 \\ \text { Increased quality } & 450,000 \\ \text { Decrease in operating costs } & 300,000 \\ \text { Increase in on-time deliveries } & 100,000 \end{array}\] The system will cost $10,000,000 and will last eleven years. The company's cost of capital is 9 percent. What is the payback period for the computerized manufacturing system?

A) 10.00 years B) 12.00 years C) 9.00 years D) 20.00 years A) 10.00 years B) 12.00 years C) 9.00 years D) 20.00 years

Colorform Company is considering the purchase of the following computer equipment, which is considered 5-year property for tax purposes: $\begin{array}{lrr} \text { Acquisition cost } & \$ 400,000 \\ \text { Annual cash flow } & \$ 140,000 \\ \text { Annual operating costs } & \$ 20,000 \\ \text { Expected salvage value } & \$ 0 \\ \text { Cost of capital } & 10 \% \\ \text { Tax rate } & 40 \% \end{array}$ Colorform Company plans to use MACRS and keep the production equipment for seven years. (Round amounts to dollars.) Tax savings from depreciation in Year 3 would be

A) $54,400. B) $30,720. C) $22,856. D) $35,360. A) $54,400. B) $30,720. C) $22,856. D) $35,360.

The following information pertains to an investment: \[\begin{array} { l r } \text { Investment } & \$ 240,000 \\ \text { Annual revenues } & \$ 140,000 \\ \text { Annual variable costs } & \$ 30,000 \\ \text { Annual fixed out-of-pocket costs } & \$ 22,000 \\ \text { Salvage value } & \$ 54,000 \\ \text { Discount rate } & 16 \% \\ \text { Expected life of project } & 3 \text { years } \end{array}\] Ignoring income taxes, the present value of the salvage value (rounded) is

A) $31,346. B) $34,614. C) $35,500. D) $46,440. A) $31,346. B) $34,614. C) $35,500. D) $46,440.

RentitAll Management Services is considering an investment of $60,000. Data related to the investment are as follows: \[\begin{array} { c c } \text { Year } & \text { Cash Flow } \\ \hline 1 & \$ 20,000 \\ 2 & 24,000 \\ 3 & 30,000 \\ 4 & 40,000 \\ 5 & 20,000 \end{array}\] Cost of capital is 18 percent. What is the payback period in years approximated to two decimal points, assuming no taxes are paid?

A) 3.00 B) 2.53 C) 2.00 D) 2.22 A) 3.00 B) 2.53 C) 2.00 D) 2.22

Highlight Company is considering the purchase of the following computer equipment, which is considered 5-year property for tax purposes: $\begin{array}{lr} \text { Acqui sition cost } & \$ 420,000 \\ \text { Annual cash flow } & \$ 140,000 \\ \text { Annual operating costs } & \$ 31,000 \\ \text { Expected salvage value } & \$0 \\ \text { Cost of capital } & 11 \% \\ \text { Tax rate } & 35 \% \end{array}$ Highlight Company plans to use Modified accelerated cost recovery system (MACRS) and keep the computer equipment for seven years.What would the MACRS deduction in Year 1 be? (Round your answer to the nearest dollar.)

A) $72,000 B) $84,000 C) $60,000 D) $68,000 A) $72,000 B) $84,000 C) $60,000 D) $68,000

Exam 19: Capital Investment

Canyon Company is considering an investment of $45,000. Data related to the investment are as follows: Year Cash Flow 1 \ 15,000 2 18,000 3 22,500 4 30,000 5 15,000 Cost of capital is 18 percent. What is the net present value of the investment, assuming no taxes are paid?

(Multiple Choice)

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(74)

Question 21

When conflicting signals are received from using NPV and IRR, NPV always produces the correct signal to invest.

(True/False)

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(74)

Question 22

What are the differences that affect capital investment decisions regarding advanced technology and environmental considerations?

(Essay)

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(74)

Question 23

Sansariff Company invests in a new piece of equipment costing $40,000. The equipment is expected to yield the following amounts per year for the equipment's four-year useful life: Cash revenues \ 60,000 Cash expenses (32,000) Depreciation expenses (straight-line) (10,000) Income provided from equipment \ 18,000 Cost of capital 14\% What is the net present value of this investment in equipment, assuming no taxes are paid?

(Multiple Choice)

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(71)

Question 24

Glare Company is considering the purchase of a new machine for $150,000. The machine generates annual revenues of $62,500 and annual expenses of $42,000, which include $8,100 of depreciation. What is the payback period in years on the machine approximated to one decimal point?

(Multiple Choice)

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Question 25

NPV is preferred to IRR because it assumes that each cash inflow is not reinvested at the required rate of return.

(True/False)

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Question 26

Which of the following methods consider the time value of money?

(Multiple Choice)

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Question 27

The present value of $7,500 to be received each year for five years and earning an 10 percent return (rounded) is

(Multiple Choice)

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Question 28

Mutually exclusive projects are those which preclude the acceptance of all other competing projects.

(True/False)

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Question 29

CrimsonCompany is considering the purchase of a computerized manufacturing system. The after-tax cash benefits/savings associated with the system are as follows: Decreased waste \ 150,000 Increased quality 450,000 Decrease in operating costs 300,000 Increase in on-time deliveries 100,000 The system will cost $10,000,000 and will last eleven years. The company's cost of capital is 9 percent. What is the payback period for the computerized manufacturing system?

(Multiple Choice)

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(81)

Question 30

Colorform Company is considering the purchase of the following computer equipment, which is considered 5-year property for tax purposes: Acquisition cost \ 400,000 Annual cash flow \ 140,000 Annual operating costs \ 20,000 Expected salvage value \ 0 Cost of capital 10\% Tax rate 40\% Colorform Company plans to use MACRS and keep the production equipment for seven years. (Round amounts to dollars.) Tax savings from depreciation in Year 3 would be

(Multiple Choice)

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(75)

Question 31

Which of the following is the formula to calculate payback period?

(Multiple Choice)

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Question 32

Capital investment decisions are concerned with planning, setting goals, arranging financing, and the selection of long-term assets.

(True/False)

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Question 33

The following information pertains to an investment: Investment \ 240,000 Annual revenues \ 140,000 Annual variable costs \ 30,000 Annual fixed out-of-pocket costs \ 22,000 Salvage value \ 54,000 Discount rate 16\% Expected life of project 3 years Ignoring income taxes, the present value of the salvage value (rounded) is

(Multiple Choice)

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(82)

Question 34

RentitAll Management Services is considering an investment of $60,000. Data related to the investment are as follows: Year Cash Flow 1 \ 20,000 2 24,000 3 30,000 4 40,000 5 20,000 Cost of capital is 18 percent. What is the payback period in years approximated to two decimal points, assuming no taxes are paid?

(Multiple Choice)

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Question 35

The difference between the present value of future cash flows and the initial investment outlay is called the __________ value.

(Short Answer)

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Question 36

Highlight Company is considering the purchase of the following computer equipment, which is considered 5-year property for tax purposes: Acqui sition cost \ 420,000 Annual cash flow \ 140,000 Annual operating costs \ 31,000 Expected salvage value \0 Cost of capital 11\% Tax rate 35\% Highlight Company plans to use Modified accelerated cost recovery system (MACRS) and keep the computer equipment for seven years.What would the MACRS deduction in Year 1 be? (Round your answer to the nearest dollar.)

(Multiple Choice)

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Question 37

Which of the following is the difference between the net present value (NPV) method and the internal rate of return (IRR) method of capital budgeting?

(Multiple Choice)

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Question 38

NVP measures the __________ in a firm's wealth caused by a project.

(Short Answer)

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Question 39

If the tax rate is 40 percent and a company has $800,000 of income, a depreciation deduction of $160,000 would result in a tax savings of

(Multiple Choice)

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(80)

Question 40

Canyon Company is considering an investment of $45,000. Data related to the investment are as follows: Year Cash Flow 1 \ 15,000 2 18,000 3 22,500 4 30,000 5 15,000 Cost of capital is 18 percent. What is the net present value of the investment, assuming no taxes are paid?

When conflicting signals are received from using NPV and IRR, NPV always produces the correct signal to invest.

What are the differences that affect capital investment decisions regarding advanced technology and environmental considerations?

Glare Company is considering the purchase of a new machine for $150,000. The machine generates annual revenues of $62,500 and annual expenses of $42,000, which include $8,100 of depreciation. What is the payback period in years on the machine approximated to one decimal point?

NPV is preferred to IRR because it assumes that each cash inflow is not reinvested at the required rate of return.

Which of the following methods consider the time value of money?

The present value of $7,500 to be received each year for five years and earning an 10 percent return (rounded) is

Mutually exclusive projects are those which preclude the acceptance of all other competing projects.

Which of the following is the formula to calculate payback period?

Capital investment decisions are concerned with planning, setting goals, arranging financing, and the selection of long-term assets.

The difference between the present value of future cash flows and the initial investment outlay is called the __________ value.

Which of the following is the difference between the net present value (NPV) method and the internal rate of return (IRR) method of capital budgeting?

NVP measures the __________ in a firm's wealth caused by a project.

If the tax rate is 40 percent and a company has $800,000 of income, a depreciation deduction of $160,000 would result in a tax savings of

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

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