Exam 12: Statement of Cash Flows

Using a number of outcome estimates to get a sense of the variability among potential returns is

Which of the following will increase the net present value of a project?

A company is considering purchasing a machine that costs $280,000 and is estimated to have no salvage value at the end of its 8-year useful life.If the machine is purchased, annual revenues are expected to be $100,000 and annual operating expenses exclusive of depreciation expense are expected to be $38,000.The straight-line method of depreciation would be used. If the machine is purchased, the annual rate of return expected on this machine is

A major advantage of the annual rate of return method is that it considers the time value of money.

For purposes of capital budgeting, estimated cash inflows and outflows are preferred for inputs into the capital budgeting decision tools.

The cash payback technique is a quick way to calculate a project's net present value.

Benaflek Co.purchased some equipment 3 years ago.The company's required rate of return is 12%, and the net present value of the project was $(1,800).Annual cost savings were: $20,000 for year 1; $16,000 for year 2; and $12,000 for year 3.The amount of the initial investment was Present Value PV of an Annuity Year of 1 at 12\% of 1 at 12\% 1 .893 .893 2 .797 1.690 3 .712 2.402

Disadvantages of the annual rate of return method include all of the following except that

An advantage of the annual rate of return method is that it relies on accrual accounting numbers rather than actual cash flows.

The first step in the capital budgeting evaluation process is to

A thorough evaluation of how well a project's actual performance matches the projections made when the project was proposed is called a

The cash payback technique

Giraldi Company has identified that the cost of a new computer will be $48,000, but with the use of the new computer, net income will increase by $5,000 a year.If depreciation expense is $3,000 a year, the cash payback period is:

The capital budgeting decision depends in part on the

A company is considering purchasing a machine that costs $400,000 and is estimated to have no salvage value at the end of its 8-year useful life.If the machine is purchased, annual revenues are expected to be $100,000 and annual operating expenses exclusive of depreciation expense are expected to be $38,000.The straight-line method of depreciation would be used.The cash payback period on the machine is

If a project has a profitability index of 1.20, then the project's internal rate of return is

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

A project with a profitability index of 1.156 also has net cash flows with a present value of $69,360.The project's internal rate of return was 10%.The initial investment was

The annual rate of return method requires dividing a project's annual cash inflows by the economic life of the project.

If a company's required rate of return is 10% and, in using the net present value method, a project's net present value is zero, this indicates that the