Question 1

All of the following are involved in the capital budgeting evaluation process except a company's

Accepted Answer

A) board of directors. 
B) capital budgeting committee. 
C) officers. 
D) stockholders. 
A) board of directors. 
B) capital budgeting committee. 
C) officers. 
D) stockholders.

Question 2

Bradshaw Inc.is contemplating a capital investment of $88,000.The cash flows over the project's four years are: $\begin{array}{lrr}\text { Expected Annual }&\text { Expected Annual }\
\text { Year }&\text { Cash Inflows }&\text { Cash Outflows }\
1 & \$ 30,000 & \$ 12,000 \
2 & 45,000 & 20,000 \
3 & 60,000 & 25,000 \
4 & 50,000 & 30,000
\end{array}$ The cash payback period is

Accepted Answer

A) 3.59 years. 
B) 3.50 years. 
C) 2.37 years. 
D) 3.20 years. 
A) 3.59 years. 
B) 3.50 years. 
C) 2.37 years. 
D) 3.20 years.

Question 3

If a company's required rate of return is 9%, and in using the profitability index method, a project's index is greater than 1, this indicates that the project's rate of return is

Accepted Answer

A) equal to 9%. 
B) greater than 9%. 
C) less than 9%. 
D) unacceptable for investment purposes. 
A) equal to 9%. 
B) greater than 9%. 
C) less than 9%. 
D) unacceptable for investment purposes.

Question 4

The internal rate of return is the interest rate that results in a

Accepted Answer

A) positive NPV. 
B) negative NPV. 
C) zero NPV. 
D) positive or negative NPV. 
A) positive NPV. 
B) negative NPV. 
C) zero NPV. 
D) positive or negative NPV.

Question 5

A company's cost of capital refers to the

Accepted Answer

A) rate the company must pay to obtain funds from creditors and stockholders. 
B) total cost of a capital project. 
C) cost of printing and registering common stock shares. 
D) rate of return earned on common stock. 
A) rate the company must pay to obtain funds from creditors and stockholders. 
B) total cost of a capital project. 
C) cost of printing and registering common stock shares. 
D) rate of return earned on common stock.

Question 6

Brady Corp.is considering the purchase of a piece of equipment that costs $20,000.Projected net annual cash flows over the project's life are: $$\begin{array} { c c } 
\text { Year } & \text { Net Annual Cash Flow } \
1 & \$ 3,000 \
2 & 8,000 \
3 & 15,000 \
4 & 9,000
\end{array}$$ The cash payback period is

Accepted Answer

A) 2.29 years. 
B) 2.60 years. 
C) 2.40 years. 
D) 2.31 years. 
A) 2.29 years. 
B) 2.60 years. 
C) 2.40 years. 
D) 2.31 years.

Question 7

Post-audits create an incentive for managers to make accurate estimates, since managers know that their results will be evaluated.

Accepted Answer

A) True 
 B)False

Question 8

Capital expenditure proposals are initially screened by the

Accepted Answer

A) board of directors. 
B) executive committee. 
C) capital budgeting committee. 
D) stockholders. 
A) board of directors. 
B) executive committee. 
C) capital budgeting committee. 
D) stockholders.

Question 9

The capital budgeting method that takes into account both the size of the original investment and the discounted cash flows is the

Accepted Answer

A) cash payback method. 
B) internal rate of return method. 
C) net present value method. 
D) profitability index. 
A) cash payback method. 
B) internal rate of return method. 
C) net present value method. 
D) profitability index.

Question 10

When a capital budgeting project generates a positive net present value, this means that the project earns a return higher than the

Accepted Answer

A) internal rate of return. 
B) annual rate of return. 
C) required rate of return. 
D) profitability index. 
A) internal rate of return. 
B) annual rate of return. 
C) required rate of return. 
D) profitability index.

Question 11

In using the internal rate of return method, the internal rate of return factor was 4.0 and the equal annual cash inflows were $18,000.The initial investment in the project must have been

Accepted Answer

A) $18,000. 
B) $4,500. 
C) $72,000. 
D) $36,000. 
A) $18,000. 
B) $4,500. 
C) $72,000. 
D) $36,000.

Question 12

Capital budgeting decisions usually involve large investments and often have a significant impact on a company's future profitability.

Accepted Answer

A) True 
 B)False

Question 13

A project that cost $75,000 has a useful life of 5 years and a salvage value of $3,000.The internal rate of return is 12% and the annual rate of return is 18%.The amount of the annual net income was

Accepted Answer

A) $7,020. 
B) $6,480. 
C) $4,680. 
D) $4,320. 
A) $7,020. 
B) $6,480. 
C) $4,680. 
D) $4,320.

Question 14

If a 2-year capital project has an internal rate of return factor equal to 1.690 and net annual cash flows of $60,000, the initial capital investment was

Accepted Answer

A) $101,400. 
B) $35,503. 
C) $50,700. 
D) $71,007. 
A) $101,400. 
B) $35,503. 
C) $50,700. 
D) $71,007.

Question 15

Mini Inc.is contemplating a capital project costing $47,019.The project will provide annual cost savings of $18,000 for 3 years and have a salvage value of $3,000.The company's required rate of return is 10%.The company uses straight-line depreciation. $\begin{array}{lrr}& \text { Present Value } & \text { PV of an Annuity } \
\text { Year } & \text { of } 1 \text { at } 10 \% & \text { of } 1 \text { at } 10 \%\
\hline 1 & .909 & .909 \
2 & .826 & 1.736 \
3 & .751 & 2.487
\end{array}$ This project is

Accepted Answer

A) unacceptable because it earns a rate less than 10%. 
B) acceptable because it has a positive NPV. 
C) unacceptable because it has a negative NPV. 
D) acceptable because it has a zero NPV. 
A) unacceptable because it earns a rate less than 10%. 
B) acceptable because it has a positive NPV. 
C) unacceptable because it has a negative NPV. 
D) acceptable because it has a zero NPV.

Question 16

Mussina Company had an investment which cost $250,000 and had a salvage value at the end of its useful life of zero.If Mussina's expected annual net income is $15,000, the annual rate of return is:

Accepted Answer

A)  6.0%. 
B) 10.2%. 
C) 12.0%. 
D) 15.0%. 
A)  6.0%. 
B) 10.2%. 
C) 12.0%. 
D) 15.0%.

Question 17

Capital budgeting is the process

Accepted Answer

A) used in sell or process further decisions. 
B) of determining how much capital stock to issue. 
C) of making capital expenditure decisions. 
D) of eliminating unprofitable product lines. 
A) used in sell or process further decisions. 
B) of determining how much capital stock to issue. 
C) of making capital expenditure decisions. 
D) of eliminating unprofitable product lines.

Question 18

Sloan Inc.recently invested in a project with a 3-year life span.The net present value was $9,000 and annual cash inflows were $21,000 for year 1; $24,000 for year 2; and $27,000 for year 3.The initial investment for the project, assuming a 15% required rate of return, was $\begin{array}{rrr}& \text { Present Value } & \text { PV of an Annuity } \
\text { Year } & \text { of } 1 \text { at } 15 \% & \text { of } 1 \text { at } 15 \%\
\hline 1 & .870 & .870 \
2 & .756 & 1.626 \
3 & .658 & 2.283
\end{array}$

Accepted Answer

A) $45,792. 
B) $45,180. 
C) $29,232. 
D) $38,376. 
A) $45,792. 
B) $45,180. 
C) $29,232. 
D) $38,376.

Question 19

A well-run organization should perform an evaluation, called a post-audit, of its investment projects before their completion.

Accepted Answer

A) True 
 B)False

Question 20

Nance Company is considering buying a machine for $90,000 with an estimated life of ten years and no salvage value.The straight-line method of depreciation will be used.The machine is expected to generate net income of $3,000 each year.The cash payback on this investment is

Accepted Answer

A) 15 years. 
B) 10 years. 
C) 7.5 years. 
D) 6 years. 
A) 15 years. 
B) 10 years. 
C) 7.5 years. 
D) 6 years.

All of the following are involved in the capital budgeting evaluation process except a company's

Bradshaw Inc.is contemplating a capital investment of $88,000.The cash flows over the project's four years are: Expected Annual Expected Annual Year Cash Inflows Cash Outflows 1 \ 30,000 \ 12,000 2 45,000 20,000 3 60,000 25,000 4 50,000 30,000 The cash payback period is

If a company's required rate of return is 9%, and in using the profitability index method, a project's index is greater than 1, this indicates that the project's rate of return is

The internal rate of return is the interest rate that results in a

A company's cost of capital refers to the

Brady Corp.is considering the purchase of a piece of equipment that costs $20,000.Projected net annual cash flows over the project's life are: Year Net Annual Cash Flow 1 \ 3,000 2 8,000 3 15,000 4 9,000 The cash payback period is

Post-audits create an incentive for managers to make accurate estimates, since managers know that their results will be evaluated.

Capital expenditure proposals are initially screened by the

The capital budgeting method that takes into account both the size of the original investment and the discounted cash flows is the

When a capital budgeting project generates a positive net present value, this means that the project earns a return higher than the

In using the internal rate of return method, the internal rate of return factor was 4.0 and the equal annual cash inflows were $18,000.The initial investment in the project must have been

Capital budgeting decisions usually involve large investments and often have a significant impact on a company's future profitability.

A project that cost $75,000 has a useful life of 5 years and a salvage value of $3,000.The internal rate of return is 12% and the annual rate of return is 18%.The amount of the annual net income was

If a 2-year capital project has an internal rate of return factor equal to 1.690 and net annual cash flows of $60,000, the initial capital investment was

Mussina Company had an investment which cost $250,000 and had a salvage value at the end of its useful life of zero.If Mussina's expected annual net income is $15,000, the annual rate of return is:

Capital budgeting is the process

A well-run organization should perform an evaluation, called a post-audit, of its investment projects before their completion.

Nance Company is considering buying a machine for $90,000 with an estimated life of ten years and no salvage value.The straight-line method of depreciation will be used.The machine is expected to generate net income of $3,000 each year.The cash payback on this investment is

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Accrual Accounting Concepts

Merchandising Operations and the Multiple-Step Income Statement

Reporting and Analyzing Inventory

Fraud, Internal Control, and Cash

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Liabilities

Reporting and Analyzing Stockholders Equity

Financial Analysis: the Big Picture

Managerial Accounting

Time Value of Money

Filters

Exam 12: Statement of Cash Flows

All of the following are involved in the capital budgeting evaluation process except a company's

Bradshaw Inc.is contemplating a capital investment of $88,000.The cash flows over the project's four years are: Expected Annual Expected Annual Year Cash Inflows Cash Outflows 1 \ 30,000 \ 12,000 2 45,000 20,000 3 60,000 25,000 4 50,000 30,000 The cash payback period is

If a company's required rate of return is 9%, and in using the profitability index method, a project's index is greater than 1, this indicates that the project's rate of return is

The internal rate of return is the interest rate that results in a

A company's cost of capital refers to the

Brady Corp.is considering the purchase of a piece of equipment that costs $20,000.Projected net annual cash flows over the project's life are: Year Net Annual Cash Flow 1 \ 3,000 2 8,000 3 15,000 4 9,000 The cash payback period is

Post-audits create an incentive for managers to make accurate estimates, since managers know that their results will be evaluated.

Capital expenditure proposals are initially screened by the

The capital budgeting method that takes into account both the size of the original investment and the discounted cash flows is the

When a capital budgeting project generates a positive net present value, this means that the project earns a return higher than the

In using the internal rate of return method, the internal rate of return factor was 4.0 and the equal annual cash inflows were $18,000.The initial investment in the project must have been

Capital budgeting decisions usually involve large investments and often have a significant impact on a company's future profitability.

A project that cost $75,000 has a useful life of 5 years and a salvage value of $3,000.The internal rate of return is 12% and the annual rate of return is 18%.The amount of the annual net income was

If a 2-year capital project has an internal rate of return factor equal to 1.690 and net annual cash flows of $60,000, the initial capital investment was

Mussina Company had an investment which cost $250,000 and had a salvage value at the end of its useful life of zero.If Mussina's expected annual net income is $15,000, the annual rate of return is:

Capital budgeting is the process

A well-run organization should perform an evaluation, called a post-audit, of its investment projects before their completion.

Nance Company is considering buying a machine for $90,000 with an estimated life of ten years and no salvage value.The straight-line method of depreciation will be used.The machine is expected to generate net income of $3,000 each year.The cash payback on this investment is

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Accrual Accounting Concepts

Merchandising Operations and the Multiple-Step Income Statement

Reporting and Analyzing Inventory

Fraud, Internal Control, and Cash

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Liabilities

Reporting and Analyzing Stockholders Equity

Financial Analysis: the Big Picture

Managerial Accounting

Time Value of Money

Filters