Question 1

By converting dollars to be received in the future into current dollars, the present value methods take into consideration that money

Accepted Answer

A)  has an international rate of exchange 
B)  is the language of business 
C)  is the measure of assets, liabilities, and stockholders' equity on financial statements 
D)  has a time value 
A)  has an international rate of exchange 
B)  is the language of business 
C)  is the measure of assets, liabilities, and stockholders' equity on financial statements 
D)  has a time value

Question 2

Which of the following are two methods of analyzing capital investment proposals that both ignore present value?

Accepted Answer

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

Question 3

Tipper Co. is considering a 10-year project that is estimated to cost $700,000 and has no residual value. Tipper seeks to earn an average rate of return of 15% on all capital projects. Determine the necessary average annual income 
(using straight-line depreciation) that must be achieved on this project for it to be acceptable to Tipper Co.

Accepted Answer

The answer of Tipper Co. is considering a 10-year project...

Question 4

If in evaluating a proposal by use of the net present value method there is a deficiency of the present value of future cash inflows over the amount to be invested, the proposal should be accepted.

Accepted Answer

A) True 
 B)False

Question 5

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 6

In net present value analysis for a proposed capital investment, the expected future net cash flows are reduced to their present values.

Accepted Answer

A) True 
 B)False

Question 7

Norton Company is considering a closed-loop geothermal heat pump to replace its existing heating system. The project will require an initial investment of $750,000 and will return $200,000 each year for five years.
(a) If taxes are ignored and the required rate of return is 9%, what is the project's net present value?
(b) Based on this analysis, should Norton Company proceed with the project?Below is a table for the present value of $1 at compound interest.​​   Below is a table for the present value of an annuity of $1 at compound interest.​

Accepted Answer

​
(a) 
($200,000 × 3.890) - $7

Question 8

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

Accepted Answer

A)  $8,930 
B)  $7,120 
C)  $7,970 
D)  $8,260 
A)  $8,930 
B)  $7,120 
C)  $7,970 
D)  $8,260

Question 9

A qualitative characteristic that may impact capital investment analysis is manufacturing productivity.

Accepted Answer

A) True 
 B)False

Question 10

Care must be taken involving capital investment decisions, since normally a long-term commitment of funds is involved and operations could be affected for many years.

Accepted Answer

A) True 
 B)False

Question 11

In capital rationing, an initial screening of alternative proposals is usually performed by establishing minimum standards. Which of the following evaluation methods are often used?

Accepted Answer

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

Question 12

A project has estimated annual cash flows of $90,000 for three years and is estimated to cost $250,000. Assume a minimum acceptable rate of return of 10%. Using the following tables, determine the 
(a) net present value of the project and 
(b) the present value index, rounded to two decimal places.Below is a table for the present value of $1 at compound interest.​   Below is a table for the present value of an annuity of $1 at compound interest.

Accepted Answer

(a) $
(26,170) [
($9

Question 13

Briefly describe the time value of money. Why is the time value of money important in capital investment analysis?

Accepted Answer

The time value of money means that a dol

Question 14

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 15

A six-year project is estimated to cost $350,000 and have no residual value. If the straight-line depreciation method is used and the average rate of return is 12%, determine the estimated annual net income.

Accepted Answer

The answer of A six-year project is estimated to cost...

Question 16

The method of analyzing capital investment proposals in which the estimated average annual income is divided by the average investment is the average rate of return method.

Accepted Answer

A) True 
 B)False

Question 17

Use these present value tables to answer the questions that follow.
​
Below is a table for the present value of $1 at compound interest.
​
 $$\begin{array} { c c c c } 
\text { Year } & 6 \% & 10 \% & 12 \% \
\hline 1 & 0.943 & 0.909 & 0.893 \
2 & 0.890 & 0.826 & 0.797 \
3 & 0.840 & 0.751 & 0.712 \
4 & 0.792 & 0.683 & 0.636 \
5 & 0.747 & 0.621 & 0.567
\end{array}$$ Below is a table for the present value of an annuity of $1 at compound interest.
​​
 $$\begin{array} { c c c c } 
\text { Year } & 6 \% & 10 \% & 12 \% \
\hline 1 & 0.943 & 0.909 & 0.893 \
2 & 1.833 & 1.736 & 1.690 \
3 & 2.673 & 2.487 & 2.402 \
4 & 3.465 & 3.170 & 3.037 \
5 & 4.212 & 3.791 & 3.605
\end{array}$$
-Using the tables above, what would be the internal rate of return of an investment of $227,460 that would generate an annual cash inflow of $60,000 for the next five years?

Accepted Answer

A)  6% 
B)  10% 
C)  12% 
D)  cannot be determined from the data given 
A)  6% 
B)  10% 
C)  12% 
D)  cannot be determined from the data given

Question 18

Decisions to install new equipment, replace old equipment, and purchase or construct a new building are examples of

Accepted Answer

A)  sales mix analysis 
B)  variable cost analysis 
C)  capital investment analysis 
D)  variable cost analysis. 
A)  sales mix analysis 
B)  variable cost analysis 
C)  capital investment analysis 
D)  variable cost analysis.

Question 19

In calculating the net present value of an investment in equipment, the required investment and its residual value should be subtracted from the present value of all future cash inflows.

Accepted Answer

A) True 
 B)False

Question 20

A qualitative characteristic that may impact capital investment analysis is market opportunities.

Accepted Answer

A) True 
 B)False

Exam 25: Capital Investment Analysis

By converting dollars to be received in the future into current dollars, the present value methods take into consideration that money

Which of the following are two methods of analyzing capital investment proposals that both ignore present value?

If in evaluating a proposal by use of the net present value method there is a deficiency of the present value of future cash inflows over the amount to be invested, the proposal should be accepted.

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

In net present value analysis for a proposed capital investment, the expected future net cash flows are reduced to their present values.

The rate of earnings is 12% and the cash to be received in two years is $10,000. Determine the present value amount, using the following partial table of present value of $1 at compound interest:? 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 ?

A qualitative characteristic that may impact capital investment analysis is manufacturing productivity.

Care must be taken involving capital investment decisions, since normally a long-term commitment of funds is involved and operations could be affected for many years.

In capital rationing, an initial screening of alternative proposals is usually performed by establishing minimum standards. Which of the following evaluation methods are often used?

Briefly describe the time value of money. Why is the time value of money important in capital investment analysis?

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

A six-year project is estimated to cost $350,000 and have no residual value. If the straight-line depreciation method is used and the average rate of return is 12%, determine the estimated annual net income.

The method of analyzing capital investment proposals in which the estimated average annual income is divided by the average investment is the average rate of return method.

Decisions to install new equipment, replace old equipment, and purchase or construct a new building are examples of

In calculating the net present value of an investment in equipment, the required investment and its residual value should be subtracted from the present value of all future cash inflows.

A qualitative characteristic that may impact capital investment analysis is market opportunities.

Introduction to Accounting and Business

Analyzing Transactions

The Adjusting Process

Completing the Accounting Cycle

Accounting Systems

Accounting for Merchandising Businesses

Inventories

Internal Control and Cash

Receivables

Long-Term Assets: Fixed and Intangible

Current Liabilities and Payroll

Accounting for Partnerships and Limited Liability Companies

Corporations: Organization, Stock Transactions, and Dividends

Long-Term Liabilities: Bonds and Notes

Investments and Fair Value Accounting

Statement of Cash Flows

Financial Statement Analysis

Introduction to Managerial Accounting

Job Order Costing

Process Cost Systems

Cost-Volume-Profit Analysis

Evaluating Variances From Standard Costs

Decentralized Operations

Differential Analysis, Product Pricing, and Activity-Based Costing

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