Question 1

Match each definition that follows with the term a-f) it defines.
-A stream of equal cash flow amounts

Accepted Answer

A) Capital rationing 
B) Annuity 
C) Capital investment analysis 
D) Internal rate of return method 
E) Payback period
F)Accounting rate of return 
A) Capital rationing 
B) Annuity 
C) Capital investment analysis 
D) Internal rate of return method 
E) Payback period
F)Accounting rate of return

Question 2

Match each definition that follows with the term a-e) it defines.
-Can be determined by initial cost divided by annual net cash inflow of an investment

Accepted Answer

A) Capital investment analysis 
B) Time value of money concept 
C) Net present value method 
D) Average rate of return 
E) Cash payback period 
A) Capital investment analysis 
B) Time value of money concept 
C) Net present value method 
D) Average rate of return 
E) Cash payback period

Question 3

The process by which management allocates available investment funds among competing capital investment proposals is termed present value analysis.

Accepted Answer

A) True 
 B)False

Question 4

A company is considering the purchase of a new machine for $48,000. Management expects that the machine can produce sales of $16,000 each year for the next 10 years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling $8,000 per year plus depreciation of $4,000 per year. All revenues and expenses except depreciation are on a cash basis. The payback period for the machine is 6 years.

Accepted Answer

A) True 
 B)False

Question 5

Vanessa Company is evaluating a project requiring a capital expenditure of $480,000. The project has an estimated life of 4 years and no salvage value. The estimated net income and net cash flow from the project are as follows: $$\begin{array} { c l l } 
\text { Year } & \text { Net Income } & \text { Net Cash Flow } \
1 & \$ 90,000 & \$ 210,000 \
2 & 80,000 & 200,000 \
3 & 40,000 & 160,000 \
4 & 30,000 & 150,000 \
& \$ 240,000 & \$ 720,000
\end{array}$$ The company's minimum desired rate of return for net present value analysis is 15%. The present value of $1 at compound interest of 15% for 1, 2, 3, and 4 years is 0.870, 0.756, 0.658, and 0.572, respectively.
Determine a) the average rate of return on investment, using straight-line depreciation, and b) the net present value.

Accepted Answer

a)$240,000/4 = $60,0

Question 6

Below is a table for the present value of $1 at compound interest. $$\begin{array} { l l l l } 
\text { Year } & 6 \% & 10 \% & 12 \% \
\hline 1 & 0.943 & 0.909 & 0.893 \
2 & 0.890 & 0.826 & 0.797 \
3 & 0.840 & 0.751 & 0.712 \
4 & 0.792 & 0.683 & 0.636 \
5 & 0.747 & 0.621 & 0.567
\end{array}$$ Below is a table for the present value of an annuity of $1 at compound interest. $$\begin{array} { l l l l } 
\text { Year } & 6 \% & 10 \% & 12 \% \
\hline 1 & 0.943 & 0.909 & 0.893 \
2 & 1.833 & 1.736 & 1.690 \
3 & 2.673 & 2.487 & 2.402 \
4 & 3.465 & 3.170 & 3.037 \
5 & 4.212 & 3.791 & 3.605
\end{array}$$
-Using the tables above, if an investment is made now for $20,000 that will generate a cash inflow of $7,000 a year for the next 4 years, what would be the present value of the investment cash inflows, assuming an earnings rate of 12%?

Accepted Answer

A)  $20,352 
B)  $3,969 
C)  $22,190 
D)  $21,259 
A)  $20,352 
B)  $3,969 
C)  $22,190 
D)  $21,259

Question 7

The expected period of time that will elapse between the date of a capital investment and the complete recovery in cash of the amount invested is called the cash payback period.

Accepted Answer

A) True 
 B)False

Question 8

$$\begin{array} { l l l } 
& \text { Income from } & \text { Net Cash } \
\text { Year } & \text { Operations } & \text { Flow } \
1 & \$ 100,000 & \$ 180,000 \
2 & 40,000 & 120,000 \
3 & 20,000 & 100,000 \
4 & 10,000 & 90,000 \
5 & 10,000 & 90,000
\end{array}$$ The net present value for this investment is
-The management of Idaho Corporation is considering the purchase of a new machine costing $430,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability of this investment:

Accepted Answer

A)  $16,400 
B)  $25,200 
C)  $99,600) 
D)  $126,800) 
A)  $16,400 
B)  $25,200 
C)  $99,600) 
D)  $126,800)

Question 9

Which method of evaluating capital investment proposals uses the concept of present value to compute a rate of return?

Accepted Answer

A)  average rate of return 
B)  accounting rate of return 
C)  cash payback period 
D)  internal rate of return 
A)  average rate of return 
B)  accounting rate of return 
C)  cash payback period 
D)  internal rate of return

Question 10

Below is a table for the present value of $1 at compound interest. $$\begin{array} { l l l l } 
\text { Year } & 6 \% & 10 \% & 12 \% \
\hline 1 & 0.943 & 0.909 & 0.893 \
2 & 0.890 & 0.826 & 0.797 \
3 & 0.840 & 0.751 & 0.712 \
4 & 0.792 & 0.683 & 0.636 \
5 & 0.747 & 0.621 & 0.567
\end{array}$$ Below is a table for the present value of an annuity of $1 at compound interest. $$\begin{array} { l l l l } 
\text { Year } & 6 \% & { 10 \% }&12\% \
\hline 1 & 0.943 & 0.909 & 0.893 \
2 & 1.833 & 1.736 & 1.690 \
3 & 2.673 & 2.487 & 2.402 \
4 & 3.465 & 3.170 & 3.037 \
5 & 4.212 & 3.791 & 3.605
\end{array}$$
-Using the tables above, what would be the present value of $30,000 to be received 3 years from today, assuming an earnings rate of 6%?

Accepted Answer

A)  $25,200 
B)  $26,700 
C)  $23,760 
D)  $80,190 
A)  $25,200 
B)  $26,700 
C)  $23,760 
D)  $80,190

Question 11

Which of the following is true of the cash payback period?

Accepted Answer

A)  the longer the payback, the longer the estimated life of the asset 
B)  the longer the payback, the sooner the cash spent on the investment is recovered 
C)  the shorter the payback, the less likely the possibility of obsolescence 
D)  all of the answers are correct 
A)  the longer the payback, the longer the estimated life of the asset 
B)  the longer the payback, the sooner the cash spent on the investment is recovered 
C)  the shorter the payback, the less likely the possibility of obsolescence 
D)  all of the answers are correct

Question 12

The primary advantages of the average rate of return method are its ease of computation and the fact that

Accepted Answer

A)  it is especially useful to managers whose primary concern is liquidity 
B)  there is less possibility of loss from changes in economic conditions and obsolescence when the commitment is short-term 
C)  it emphasizes the amount of income earned over the life of the proposal 
D)  rankings of proposals are necessary 
A)  it is especially useful to managers whose primary concern is liquidity 
B)  there is less possibility of loss from changes in economic conditions and obsolescence when the commitment is short-term 
C)  it emphasizes the amount of income earned over the life of the proposal 
D)  rankings of proposals are necessary

Question 13

The rate of earnings is 6% and the cash to be received in 4 years is $20,000. The present value amount, using the following partial table of present value of $1 at compound interest is $$\begin{array} { l l l l } 
\text { Year } & 6 \% & 10 \% & 12 \% \
\hline 1 & 0.943 & 0.909 & 0.893 \
2 & 0.890 & 0.826 & 0.797 \
3 & 0.840 & 0.751 & 0.712 \
4 & 0.792 & 0.683 & 0.636
\end{array}$$

Accepted Answer

A)  $13,660 
B)  $12,720 
C)  $15,840 
D)  $16,800 
A)  $13,660 
B)  $12,720 
C)  $15,840 
D)  $16,800

Question 14

The management of Wyoming Corporation is considering the purchase of a new machine costing $375,000. The company's desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the foregoing information, use the following data in determining the acceptability of this investment:  
-The net present value for this investment is

Accepted Answer

A)  $118,145) 
B)  $118,145 
C)  $19,875 
D)  $19,875) 
A)  $118,145) 
B)  $118,145 
C)  $19,875 
D)  $19,875)

Question 15

Periods in time that experience increasing price levels are known as periods of

Accepted Answer

A)  inflation 
B)  recession 
C)  depression 
D)  deflation 
A)  inflation 
B)  recession 
C)  depression 
D)  deflation

Question 16

A project is estimated to cost $248,400 and provide annual cash flows of $50,000 for 8 years. Determine the internal rate of return for this project, using the following present value of an annuity table. $$\begin{array} { l l l l } 
\text { Year } & 6 \% & 10 \% & 12 \% \
\hline 1 & 0.943 & 0.909 & 0.893 \
2 & 1.833 & 1.736 & 1.690 \
3 & 2.673 & 2.487 & 2.402 \
4 & 3.465 & 3.170 & 3.037 \
5 & 4.212 & 3.791 & 3.605 \
6 & 4.917 & 4.355 & 4.111 \
7 & 5.582 & 4.868 & 4.564 \
8 & 6.210 & 5.335 & 4.968 \
9 & 6.802 & 5.759 & 5.328 \
10 & 7.360 & 6.145 & 5.650
\end{array}$$

Accepted Answer

12% [$248,400/$50,00

Question 17

The method of analyzing capital investment proposals that divides the estimated average annual income by the average investment is

Accepted Answer

A)  cash payback method 
B)  net present value method 
C)  internal rate of return method 
D)  average rate of return method 
A)  cash payback method 
B)  net present value method 
C)  internal rate of return method 
D)  average rate of return method

Question 18

Below is a table for the present value of $1 at compound interest. $$\begin{array} { l l l l } 
\text { Year } & 6 \% & 10 \% & 12 \% \
\hline 1 & 0.943 & 0.909 & 0.893 \
2 & 0.890 & 0.826 & 0.797 \
3 & 0.840 & 0.751 & 0.712 \
4 & 0.792 & 0.683 & 0.636 \
5 & 0.747 & 0.621 & 0.567
\end{array}$$ Below is a table for the present value of an annuity of $1 at compound interest. $$\begin{array} { l l l l } 
\text { Year } & 6 \% & 10 \% & 12 \% \
\hline 1 & 0.943 & 0.909 & 0.893 \
2 & 1.833 & 1.736 & 1.690 \
3 & 2.673 & 2.487 & 2.402 \
4 & 3.465 & 3.170 & 3.037 \
5 & 4.212 & 3.791 & 3.605
\end{array}$$
-The production department is proposing the purchase of an automatic insertion machine. It has identified 3 machines and have asked the accountant to analyze them to determine which of the proposals if any) meet or exceed the company's policy of a minimum desired rate of return of 10% using the net present value method. Each of the assets has an estimated useful life of 10 years. The accountant has identified the following data: $$\begin{array} { | l | l | l | l | } 
\hline & \text { Machine A } & \text { Machine B } & \text { Machine C } \
\hline \begin{array} { l } 
\text { Present value of future cash flows } \
\text { computed using } 10 \% \text { rate of }
\end{array} &\$305,000 &\$295,000 & \$300,000\
\hline \text { Amount of initial investment } & 300,000 & 300,000 & 300,000 \
\hline
\end{array}$$ Which of the investments are acceptable?

Accepted Answer

A)  Machines A & C 
B)  Machines B & C 
C)  Machine B only 
D)  Machine A only 
A)  Machines A & C 
B)  Machines B & C 
C)  Machine B only 
D)  Machine A only

Question 19

The process by which management allocates available investment funds among competing capital investment proposals is termed capital rationing.

Accepted Answer

A) True 
 B)False

Question 20

Heidi Company is considering the acquisition of a machine that costs $420,000. The machine is expected to have a useful life of 6 years, a negligible residual value, an annual net cash flow of $120,000, and annual operating income of $83,721. What is the estimated cash payback period for the machine?

Accepted Answer

A)  3.5 years 
B)  5 years 
C)  5.1 years 
D)  4 years 
A)  3.5 years 
B)  5 years 
C)  5.1 years 
D)  4 years

Match each definition that follows with the term a-f) it defines. -A stream of equal cash flow amounts

Match each definition that follows with the term a-e) it defines. -Can be determined by initial cost divided by annual net cash inflow of an investment

The process by which management allocates available investment funds among competing capital investment proposals is termed present value analysis.

The expected period of time that will elapse between the date of a capital investment and the complete recovery in cash of the amount invested is called the cash payback period.

Which method of evaluating capital investment proposals uses the concept of present value to compute a rate of return?

Which of the following is true of the cash payback period?

The primary advantages of the average rate of return method are its ease of computation and the fact that

The rate of earnings is 6% and the cash to be received in 4 years is $20,000. The present value amount, using the following partial table of present value of $1 at compound interest is Year 6\% 10\% 12\% 1 0.943 0.909 0.893 2 0.890 0.826 0.797 3 0.840 0.751 0.712 4 0.792 0.683 0.636

Periods in time that experience increasing price levels are known as periods of

The method of analyzing capital investment proposals that divides the estimated average annual income by the average investment is

The process by which management allocates available investment funds among competing capital investment proposals is termed capital rationing.

Introduction to Accounting and Business

Analyzing Transactions

The Adjusting Process

Completing the Accounting Cycle

Accounting for Merchandising Businesses

Inventories

Sarbanes-Oxley, Internal Control, and Cash

Receivables

Fixed Assets and Intangible Assets

Current Liabilities and Payroll

Corporations: Organization, Stock Transactions, and Dividends

Long-Term Liabilities: Bonds and Notes

Investments and Fair Value Accounting

Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting Concepts and Principles

Job Order Costing

Process Cost Systems

Cost Behavior and Cost-Volume-Profit Analysis

Variable Costing for Management Analysis

Budgeting

Performance Evaluation Using Variances From Standard Costs

Performance Evaluation for Decentralized Operations

Differential Analysis, Product Pricing, and Activity-Based Costing

Cost Allocation and Activity-Based Costing

Lean Principles, Lean Accounting, and Activity Analysis

Filters

Exam 25: Capital Investment Analysis

Match each definition that follows with the term a-f) it defines. -A stream of equal cash flow amounts

Match each definition that follows with the term a-e) it defines. -Can be determined by initial cost divided by annual net cash inflow of an investment

The process by which management allocates available investment funds among competing capital investment proposals is termed present value analysis.

The expected period of time that will elapse between the date of a capital investment and the complete recovery in cash of the amount invested is called the cash payback period.

Which method of evaluating capital investment proposals uses the concept of present value to compute a rate of return?

Which of the following is true of the cash payback period?

The primary advantages of the average rate of return method are its ease of computation and the fact that

The rate of earnings is 6% and the cash to be received in 4 years is $20,000. The present value amount, using the following partial table of present value of $1 at compound interest is Year 6\% 10\% 12\% 1 0.943 0.909 0.893 2 0.890 0.826 0.797 3 0.840 0.751 0.712 4 0.792 0.683 0.636

Periods in time that experience increasing price levels are known as periods of

The method of analyzing capital investment proposals that divides the estimated average annual income by the average investment is

The process by which management allocates available investment funds among competing capital investment proposals is termed capital rationing.

Introduction to Accounting and Business

Analyzing Transactions

The Adjusting Process

Completing the Accounting Cycle

Accounting for Merchandising Businesses

Inventories

Sarbanes-Oxley, Internal Control, and Cash

Receivables

Fixed Assets and Intangible Assets

Current Liabilities and Payroll

Corporations: Organization, Stock Transactions, and Dividends

Long-Term Liabilities: Bonds and Notes

Investments and Fair Value Accounting

Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting Concepts and Principles

Job Order Costing

Process Cost Systems

Cost Behavior and Cost-Volume-Profit Analysis

Variable Costing for Management Analysis

Budgeting

Performance Evaluation Using Variances From Standard Costs

Performance Evaluation for Decentralized Operations

Differential Analysis, Product Pricing, and Activity-Based Costing

Cost Allocation and Activity-Based Costing

Lean Principles, Lean Accounting, and Activity Analysis

Filters