Question 1

Using the internal rate of return method, a project is rejected when the rate of return is greater than or equal to the required rate of return.

Accepted Answer

A) True 
 B)False

Question 2

Using the annual rate of return method, a project is acceptable if its rate of return is greater than management's minimum rate of return.

Accepted Answer

A) True 
 B)False

Question 3

If a project's profitability index is less than 1, then

Accepted Answer

A) its net present value is zero. 
B) its net present value is positive. 
C) it should be rejected. 
D) its internal rate of return is greater than the discount rate. 
A) its net present value is zero. 
B) its net present value is positive. 
C) it should be rejected. 
D) its internal rate of return is greater than the discount rate.

Question 4

The corporate capital budget authorization process consists of how many steps?

Accepted Answer

A) 4 
B) 3 
C) 2 
D) 1 
A) 4 
B) 3 
C) 2 
D) 1

Question 5

The discount rate that will result in the lowest net present value for a project is

Accepted Answer

A) any rate lower that the cost of capital. 
B) any rate higher than the cost of capital. 
C) the lowest rate used to evaluate the project. 
D) the highest rate used to evaluate the project. 
A) any rate lower that the cost of capital. 
B) any rate higher than the cost of capital. 
C) the lowest rate used to evaluate the project. 
D) the highest rate used to evaluate the project.

Question 6

If a project has a zero net present value, its profitability index will be

Accepted Answer

A) one. 
B) greater than one. 
C) less than one. 
D) undeterminable. 
A) one. 
B) greater than one. 
C) less than one. 
D) undeterminable.

Question 7

The payback period is often compared to an asset's

Accepted Answer

A) estimated useful life. 
B) warranty period. 
C) net present value. 
D) internal rate of return. 
A) estimated useful life. 
B) warranty period. 
C) net present value. 
D) internal rate of return.

Question 8

Miles, Inc.is considering the purchase of a new machine for $600,000 that has an estimated useful life of 5 years and no salvage value.The machine will generate net annual cash flows of $105,000.It is believed that the new machine will reduce downtime because of its reliability.Assume the discount rate is 8%.In order to make the project acceptable, the reduction in downtime must be worth $\begin{array}{rrr}& \text { Present Value } & \text { PV of an Annuity } \
\text { Year } & \text { of } 1 \text { at } 8 \% & \text { of } 1 \text { at } 8 \%\\hline
1 & .926 & .926 \
2 & .857 & 1.783 \
3 & .794 & 2.577 \
4 & .735 & 3.312 \
5 & .681 & 3.993
\end{array}$

Accepted Answer

A) $23,958 per year. 
B) $49,662 per year. 
C) $18,264 per year. 
D) $45,263 per year. 
A) $23,958 per year. 
B) $49,662 per year. 
C) $18,264 per year. 
D) $45,263 per year.

Question 9

If an asset costs $240,000 and is expected to have a $40,000 salvage value at the end of its ten-year life, and generates annual net cash inflows of $40,000 each year, the cash payback period is

Accepted Answer

A) 7 years. 
B) 6 years. 
C) 5 years. 
D) 4 years. 
A) 7 years. 
B) 6 years. 
C) 5 years. 
D) 4 years.

Question 10

Use the following table, $\text { Present Value of an Annuity of } 1$
$\begin{array}{lrrr}
\text { Period }&8\%&9\%&10\%\
1 & .926 & .917 & .909 \
2 & 1.783 & 1.759 & 1.736 \
3 & 2.577 & 2.531 & 2.487
\end{array}$ A company has a minimum required rate of return of 8%.It is considering investing in a project that costs $379,650 and is expected to generate cash inflows of $150,000 each year for three years.The approximate internal rate of return on this project is

Accepted Answer

A) 8%. 
B) 9%. 
C) 10%. 
D) The IRR on this project cannot be approximated. 
A) 8%. 
B) 9%. 
C) 10%. 
D) The IRR on this project cannot be approximated.

Question 11

If a project has a negative net present value, the internal rate of return will be

Accepted Answer

A) less than the discount rate. 
B) greater than the discount rate. 
C) equal to the discount rate. 
D) a negative rate of return. 
A) less than the discount rate. 
B) greater than the discount rate. 
C) equal to the discount rate. 
D) a negative rate of return.

Question 12

Performing a post-audit is important because

Accepted Answer

A) managers will be more likely to submit reasonable data when they make investment proposals if they know their estimates will be compared to actual results. 
B) it provides a formal mechanism by which the company can determine whether existing projects should be terminated. 
C) it improves the development of future investment proposals because managers improve their estimation techniques by evaluating their past successes and failures. 
D) all of these. 
A) managers will be more likely to submit reasonable data when they make investment proposals if they know their estimates will be compared to actual results. 
B) it provides a formal mechanism by which the company can determine whether existing projects should be terminated. 
C) it improves the development of future investment proposals because managers improve their estimation techniques by evaluating their past successes and failures. 
D) all of these.

Question 13

When calculating the annual rate of return, the average investment is equal to

Accepted Answer

A) (initial investment plus $0) divided by 2. 
B) initial investment divided by life of project. 
C) initial investment divided by 2. 
D) (initial investment plus salvage value) divided by 2. 
A) (initial investment plus $0) divided by 2. 
B) initial investment divided by life of project. 
C) initial investment divided by 2. 
D) (initial investment plus salvage value) divided by 2.

Question 14

In capital budgeting, intangible benefits should be

Accepted Answer

A) excluded entirely. 
B) included using optimistic estimated values. 
C) included using conservative estimated values. 
D) included only when benefits are known with certainty. 
A) excluded entirely. 
B) included using optimistic estimated values. 
C) included using conservative estimated values. 
D) included only when benefits are known with certainty.

Question 15

The annual rate of return is computed by dividing expected annual

Accepted Answer

A) cash inflows by average investment. 
B) net income by average investment. 
C) cash inflows by original investment. 
D) net income by original investment. 
A) cash inflows by average investment. 
B) net income by average investment. 
C) cash inflows by original investment. 
D) net income by original investment.

Question 16

If the internal rate of return is less than the discount rate, then the net present value of a project is

Accepted Answer

A) positive. 
B) negative. 
C) zero. 
D) one. 
A) positive. 
B) negative. 
C) zero. 
D) one.

Using the internal rate of return method, a project is rejected when the rate of return is greater than or equal to the required rate of return.

Using the annual rate of return method, a project is acceptable if its rate of return is greater than management's minimum rate of return.

If a project's profitability index is less than 1, then

The corporate capital budget authorization process consists of how many steps?

The discount rate that will result in the lowest net present value for a project is

If a project has a zero net present value, its profitability index will be

The payback period is often compared to an asset's

If an asset costs $240,000 and is expected to have a $40,000 salvage value at the end of its ten-year life, and generates annual net cash inflows of $40,000 each year, the cash payback period is

If a project has a negative net present value, the internal rate of return will be

Performing a post-audit is important because

When calculating the annual rate of return, the average investment is equal to

In capital budgeting, intangible benefits should be

The annual rate of return is computed by dividing expected annual

If the internal rate of return is less than the discount rate, then the net present value of a project 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

Using the internal rate of return method, a project is rejected when the rate of return is greater than or equal to the required rate of return.

Using the annual rate of return method, a project is acceptable if its rate of return is greater than management's minimum rate of return.

If a project's profitability index is less than 1, then

The corporate capital budget authorization process consists of how many steps?

The discount rate that will result in the lowest net present value for a project is

If a project has a zero net present value, its profitability index will be

The payback period is often compared to an asset's

If an asset costs $240,000 and is expected to have a $40,000 salvage value at the end of its ten-year life, and generates annual net cash inflows of $40,000 each year, the cash payback period is

If a project has a negative net present value, the internal rate of return will be

Performing a post-audit is important because

When calculating the annual rate of return, the average investment is equal to

In capital budgeting, intangible benefits should be

The annual rate of return is computed by dividing expected annual

If the internal rate of return is less than the discount rate, then the net present value of a project 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