Question 1

Investment outlays may be affected by substantial resources required by __________ items.

Accepted Answer

The answer of Investment outlays may be affected by substantial...

Question 2

Under the current tax law, an asset that is classified as 5-year property and has a cost of $200,000 would result in a depreciation deduction in Year 2 of

Accepted Answer

A) $40,000. 
B) $50,000. 
C) $64,000. 
D) $38,400. 
A) $40,000. 
B) $50,000. 
C) $64,000. 
D) $38,400.

Question 3

The present value of $10,000 to be received ten years from now and earning a 12 percent return (rounded) is

Accepted Answer

A) $2,200. 
B) $2,484. 
C) $3,160. 
D) $3,220. 
A) $2,200. 
B) $2,484. 
C) $3,160. 
D) $3,220.

Question 4

When comparing the payback method and the accounting rate of return methods, which of the following is true? $$\begin{array} { | l | l | l| } 
\hline & { \text { Profitability } } &{ \text { Time Value of Money } } \
\hline \text { I } & \text { Ignored by both methods } & \text { Ignored by both methods } \
\hline \text { II } & \text { Ignored by both methods } & \begin{array} { l } 
\text { Used in accounting rate of return, ignored by } \
\text { payback method }
\end{array} \
\hline \text { III } & \begin{array} { l } 
\text { Considered by accounting method, not } \
\text { by payback }
\end{array} & \text { Ignored by both methods } \
\hline \text { IV } & \begin{array} { l } 
\text { Considered by accounting method, not } \
\text { by payback }
\end{array} & \begin{array} { l } 
\text { Considered by both methods } \

\end{array}\\hline
\end{array}$$

Accepted Answer

A) IV 
B) III 
C) II 
D) I 
A) IV 
B) III 
C) II 
D) I

Question 5

Milagros Company is considering an investment in equipment for $60,000. Milagros uses the straight-line method of depreciation with no mid-year convention. In addition, its tax rate is 40 percent and the life of the equipment is five years with no salvage value. The expected income before depreciation and taxes is projected to be $30,000 per year. What is the payback period in years approximated to two decimal points?

Accepted Answer

A) 4.00 
B) 2.63 
C) 2.00 
D) 1.00 
A) 4.00 
B) 2.63 
C) 2.00 
D) 1.00

Question 6

Which of the following methods uses income instead of cash flows?

Accepted Answer

A) payback 
B) accounting rate of return 
C) internal rate of return 
D) net present value 
A) payback 
B) accounting rate of return 
C) internal rate of return 
D) net present value

Question 7

Gunslinger Company is considering the purchase of pipe cutting equipment. Data on the equipment are as follows: $$\begin{array} { l r } 
\text { Original investment } & \$ 35,000 \
\text { Net annual cash inflow } & \$ 8,000 \
\text { Expected economic life in years } & 5 \
\text { Salvage value at the end of five years } & \$ 3,500
\end{array}$$ The company uses the straight-line method of depreciation with no mid-year convention. What is the accounting rate of return on original investment rounded to the nearest percent, assuming no taxes are paid?

Accepted Answer

A) 22.86% 
B) 2.86% 
C) 18% 
D) 4.86% 
A) 22.86% 
B) 2.86% 
C) 18% 
D) 4.86%

Question 8

the two ways to compute after-tax cash flows are the income method and the composition method.

Accepted Answer

A) True 
 B)False

Question 9

Galveston Corporation is considering an investment in equipment for $45,000. Data related to the investment are as follows: $$\begin{array}{l}\begin{array} { c c } 
&\text { Cash Flow before }\

\text { Year } & \text { Depreciation and Taxes } \
& \$ 30,000 \
2 & 30,000 \
3 & 30,000 \
4 & 30,000 \
5 & 30,000
\end{array}
\end{array}$$ Cost of capital is 18 percent. Galveston uses the straight-line method of depreciation with no mid-year convention. In addition, their tax rate is 40 percent, and the life of the equipment is five years with no salvage value. What is the net present value of the investment?

Accepted Answer

A) $67,543 
B) $22,543 
C) $48,810 
D) $11,286 
A) $67,543 
B) $22,543 
C) $48,810 
D) $11,286

Question 10

Los Gatos Shop is considering the purchase of a used wide-format printer costing $9,600. The wide-format printer would generate a net cash inflow of $4,000 per year for three years. At the end of three years, the printer would have no salvage value. The company's cost of capital is 10 percent. The company uses straight-line depreciation with no mid-year convention. What is the net present value for the press, assuming no taxes are paid?

Accepted Answer

A) $2,400 
B) $9,948 
C) $348 
D) $9,600 
A) $2,400 
B) $9,948 
C) $348 
D) $9,600

Question 11

Callendula 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 internal rate of return for the machine rounded to the nearest percent?

Accepted Answer

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

Question 12

Nondiscounting models for making capital investments explicitly consider the time value of money.

Accepted Answer

A) True 
 B)False

Question 13

Five mutually exclusive projects had the following information: $$\begin{array} { l c c c c c } 
& \mathrm { A } & \mathrm { B } & \mathrm { C } & \mathrm { D } & \mathrm { E } \
\begin{array} { l } 
\text { Net Present }
\end{array}  \
\text { Value } & \$ 16,000 & \$ 25,000 & \$ 30,000 & \$ 18,000 & \$ 13,000 \
\text { Internal Rate of }  \
\text { Return } & 9 \% & 10 \% & 12 \% & 11 \% & 8 \% 
\end{array}$$ Which project is preferred?

Accepted Answer

A) Project B 
B) Project C 
C) Project A 
D) Project D 
A) Project B 
B) Project C 
C) Project A 
D) Project D

Question 14

A machine with a book value of $60,000 could be sold for $80,000. The corporation that owns the machine has taxable income of $670,000 and a 40 percent tax rate. What would be the tax on the sale of the machine?

Accepted Answer

A) $0 
B) $20,000 
C) $12,000 
D) $8,000 
A) $0 
B) $20,000 
C) $12,000 
D) $8,000

Question 15

A firm is considering a project requiring an investment of $30,000. The project would generate an annual cash flow of $7,251 for the next six years. The company uses the straight-line method of depreciation with no mid-year convention. Ignore income taxes. The approximate internal rate of return for the project is:

Accepted Answer

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

Question 16

The present value of $20,000 to be received five years from now and earning a 6 percent return (rounded) is

Accepted Answer

A) $14,000. 
B) $14,940. 
C) $15,784. 
D) $16,420. 
A) $14,000. 
B) $14,940. 
C) $15,784. 
D) $16,420.

Question 17

A corporation with taxable income of $400,000 and a 40 percent tax rate is considering the sale of an asset. The original cost of the asset is $20,000, with $12,000 of it depreciated. How much total after-tax cash will be produced from the sale of the asset for $24,000?

Accepted Answer

A) $17,600 
B) $24,000 
C) $22,400 
D) ($6,400) 
A) $17,600 
B) $24,000 
C) $22,400 
D) ($6,400)

Question 18

Davidson, Inc., is considering the purchase of production equipment that costs $300,000. The equipment is expected to generate an annual cash flow of $100,000 and have a useful life of five years with no salvage value. The firm's cost of capital is 14 percent. The company uses the straight-line method of depreciation with no mid-year convention. Ignore income taxes. Payback for the project is

Accepted Answer

A) 3.00 years. 
B) 3.50 years. 
C) 5.00 years. 
D) 2.38 years. 
A) 3.00 years. 
B) 3.50 years. 
C) 5.00 years. 
D) 2.38 years.

Question 19

Heckrwee Industries is considering a project that would require an initial investment of $101,000. The project would result in cost savings of $62,000 in year 1 and $70,000 in year 2. The internal rate of return is

Accepted Answer

A) under 15%. 
B) between 16% and 17%. 
C) between 18% and 20%. 
D) none of the above. 
A) under 15%. 
B) between 16% and 17%. 
C) between 18% and 20%. 
D) none of the above.

Question 20

Edmundo Services is considering an investment of $25,000. Data related to the investment are as follows: $\begin{array}{cr}
\text { Year } & \text { Cash Flow } \
1 & \$ 10,000 \
2 & 11,000 \
3 & 8,000 \
4 & 15,000 \
5 & 15,000
\end{array}$ Cost of capital is 14 percent. What is the net present value of the investment, assuming no taxes are paid?

Accepted Answer

A) $14,825 
B) $14,294 
C) $25,000 
D) $39,294 
A) $14,825 
B) $14,294 
C) $25,000 
D) $39,294

Investment outlays may be affected by substantial resources required by __________ items.

Under the current tax law, an asset that is classified as 5-year property and has a cost of $200,000 would result in a depreciation deduction in Year 2 of

The present value of $10,000 to be received ten years from now and earning a 12 percent return (rounded) is

Which of the following methods uses income instead of cash flows?

the two ways to compute after-tax cash flows are the income method and the composition method.

Nondiscounting models for making capital investments explicitly consider the time value of money.

Five mutually exclusive projects had the following information: Net Present Value \ 16,000 \ 25,000 \ 30,000 \ 18,000 \ 13,000 Internal Rate of Return 9\% 10\% 12\% 11\% 8\% Which project is preferred?

A machine with a book value of $60,000 could be sold for $80,000. The corporation that owns the machine has taxable income of $670,000 and a 40 percent tax rate. What would be the tax on the sale of the machine?

The present value of $20,000 to be received five years from now and earning a 6 percent return (rounded) is

A corporation with taxable income of $400,000 and a 40 percent tax rate is considering the sale of an asset. The original cost of the asset is $20,000, with $12,000 of it depreciated. How much total after-tax cash will be produced from the sale of the asset for $24,000?

Heckrwee Industries is considering a project that would require an initial investment of $101,000. The project would result in cost savings of $62,000 in year 1 and $70,000 in year 2. The internal rate of return is

Edmundo Services is considering an investment of $25,000. Data related to the investment are as follows: Year Cash Flow 1 \ 10,000 2 11,000 3 8,000 4 15,000 5 15,000 Cost of capital is 14 percent. What is the net present value of the investment, assuming no taxes are paid?

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

Investment outlays may be affected by substantial resources required by __________ items.

Under the current tax law, an asset that is classified as 5-year property and has a cost of $200,000 would result in a depreciation deduction in Year 2 of

The present value of $10,000 to be received ten years from now and earning a 12 percent return (rounded) is

Which of the following methods uses income instead of cash flows?

the two ways to compute after-tax cash flows are the income method and the composition method.

Nondiscounting models for making capital investments explicitly consider the time value of money.

Five mutually exclusive projects had the following information: Net Present Value \ 16,000 \ 25,000 \ 30,000 \ 18,000 \ 13,000 Internal Rate of Return 9\% 10\% 12\% 11\% 8\% Which project is preferred?

A machine with a book value of $60,000 could be sold for $80,000. The corporation that owns the machine has taxable income of $670,000 and a 40 percent tax rate. What would be the tax on the sale of the machine?

The present value of $20,000 to be received five years from now and earning a 6 percent return (rounded) is

A corporation with taxable income of $400,000 and a 40 percent tax rate is considering the sale of an asset. The original cost of the asset is $20,000, with $12,000 of it depreciated. How much total after-tax cash will be produced from the sale of the asset for $24,000?

Heckrwee Industries is considering a project that would require an initial investment of $101,000. The project would result in cost savings of $62,000 in year 1 and $70,000 in year 2. The internal rate of return is

Edmundo Services is considering an investment of $25,000. Data related to the investment are as follows: Year Cash Flow 1 \ 10,000 2 11,000 3 8,000 4 15,000 5 15,000 Cost of capital is 14 percent. What is the net present value of the investment, assuming no taxes are paid?

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