Question 1

Which of the following is a method of analyzing capital investment proposals that ignores present value?

Accepted Answer

A)  internal rate of return 
B)  net present value 
C)  discounted cash flow 
D)  average rate of return 
A)  internal rate of return 
B)  net present value 
C)  discounted cash flow 
D)  average rate of return

Question 2

The production department is proposing the purchase of an automatic insertion machine. It has identified three machines and has asked the accountant to analyze them to determine the best cash payback. Which machine has the best payback period?​

Accepted Answer

A)  Machine A 
B)  Machine C 
C)  Machine B 
D)  They all three have the same cash payback period. 
A)  Machine A 
B)  Machine C 
C)  Machine B 
D)  They all three have the same cash payback period.

Question 3

Which of the following can be used to place capital investment proposals involving different amounts of investment on a comparable basis for purposes of net present value analysis?

Accepted Answer

A)  price-level index 
B)  future value index 
C)  rate of investment index 
D)  present value index 
A)  price-level index 
B)  future value index 
C)  rate of investment index 
D)  present value index

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

The production department is proposing the purchase of an automatic insertion machine. It has identified three machines, each with an estimated life of 10 years. Which machine offers the best internal rate of return??? $\begin{array}{|l|r|r|r|}
\hline & \text { Machine A } & \text { Machine B } & \text { Machine C } \
\hline \text { Annual net cash flows } & \$ 50,000 & \$ 40,000 & \$ 75,000 \
\hline \text { Average investment } & 250,000 & 300,000 & 500,000 \
\hline
\end{array}$

Accepted Answer

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

Question 6

Match each definition that follows with the term (a-e) it defines.
-Also referred to as capital budgeting

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 7

Match each definition that follows with the term (a-f) it defines.
-A formal means of analyzing long-range investment decisions

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 8

The amount of the estimated average income for a proposed investment of $90,000 in a fixed asset, giving effect to depreciation (straight-line method), with a useful life of four years, no residual value, and an expected total income yield of $25,300, is

Accepted Answer

A)  $12,650 
B)  $25,300 
C)  $6,325 
D)  $45,000 
A)  $12,650 
B)  $25,300 
C)  $6,325 
D)  $45,000

Question 9

An investment of $185,575 is expected to generate returns of $65,000 per year for each of the next four years. What is the investment's internal rate of return?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

$185,575/$

Question 10

The management of California Corporation is considering the purchase of a new machine costing $400,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for Years 1 through 5 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:​   The present value index for this investment is

Accepted Answer

A)  0.88 
B)  1.45 
C)  1.14 
D)  0.70 
A)  0.88 
B)  1.45 
C)  1.14 
D)  0.70

Question 11

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 12

A company is planning to purchase a machine that will cost $24,000, have a six-year life, and have no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. Total income over the life of the machine is estimated to be $12,000. The machine will generate net cash flows per year of $6,000. The average rate of return for the machine is 16.7%.

Accepted Answer

A) True 
 B)False

Question 13

A company is planning to purchase a machine that will cost $24,000, have a six-year life, and have no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. Total income over the life of the machine is estimated to be $12,000. The machine will generate net cash flows per year of $6,000. The payback period for the machine is four years.

Accepted Answer

A) True 
 B)False

Question 14

Project A requires an original investment of $65,000. The project will yield cash flows of $15,000 per year for seven years. Project B has a calculated net present value of $5,500 over a five-year life. Project A could be sold at the end of five years for a price of $30,000. 
(a) Using the table below, determine the net present value of Project A over a five-year life with salvage value assuming a minimum rate of return of 12%. 
(b) Which project provides the greatest net present value?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. $$\begin{array} { c c c c } 
\text { Year } & 6 \% & 10 \% & 12 \% \
\hline 1 & 0.943 & 0.909 & 0.893 \
2 & 1.833 & 1.736 & 1.690 \
3 & 2.673 & 2.487 & 2.402 \
4 & 3.465 & 3.170 & 3.037 \
5 & 4.212 & 3.791 & 3.605
\end{array}$$

Accepted Answer

The answer of Project A requires an original investment of...

Question 15

The amount of the average investment for a proposed investment of $120,000 in a fixed asset with a useful life of four years, straight-line depreciation, no residual value, and an expected total net income of $21,600 for the four years is

Accepted Answer

A)  $30,000 
B)  $21,600 
C)  $5,400 
D)  $60,000 
A)  $30,000 
B)  $21,600 
C)  $5,400 
D)  $60,000

Question 16

The management of Arkansas Corporation is considering the purchase of a new machine costing $490,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for Years 1 through 5 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:​   The net present value for this investment is

Accepted Answer

A)  $36,400 
B)  $55,200 
C)  $(16,170) 
D)  $(126,800) 
A)  $36,400 
B)  $55,200 
C)  $(16,170) 
D)  $(126,800)

Question 17

Match each of the methods that follow with the correct category (a or b).
-Cash payback method

Accepted Answer

A) Method that does not use present value 
B) Method that uses present value 
A) Method that does not use present value 
B) Method that uses present value

Question 18

Determine the average rate of return for a project that is estimated to yield total income of $250,000 over four years, cost $480,000, and has a $20,000 residual value.

Accepted Answer

Estimated average annual incom

Question 19

A series of equal cash flows at fixed intervals is termed a (n)

Accepted Answer

A)  present value index 
B)  price-level index 
C)  net cash flow 
D)  annuity 
A)  present value index 
B)  price-level index 
C)  net cash flow 
D)  annuity

Question 20

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 present value of $15,000 to be received at the end of each of the next two years, assuming an earnings rate of 6%?

Accepted Answer

A)  $27,495 
B)  $26,040 
C)  $30,000 
D)  $25,350 
A)  $27,495 
B)  $26,040 
C)  $30,000 
D)  $25,350

Which of the following is a method of analyzing capital investment proposals that ignores present value?

The production department is proposing the purchase of an automatic insertion machine. It has identified three machines and has asked the accountant to analyze them to determine the best cash payback. Which machine has the best payback period?

Which of the following can be used to place capital investment proposals involving different amounts of investment on a comparable basis for purposes of net present value analysis?

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

Match each definition that follows with the term (a-e) it defines. -Also referred to as capital budgeting

Match each definition that follows with the term (a-f) it defines. -A formal means of analyzing long-range investment decisions

The amount of the estimated average income for a proposed investment of $90,000 in a fixed asset, giving effect to depreciation (straight-line method), with a useful life of four years, no residual value, and an expected total income yield of $25,300, is

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 amount of the average investment for a proposed investment of $120,000 in a fixed asset with a useful life of four years, straight-line depreciation, no residual value, and an expected total net income of $21,600 for the four years is

Match each of the methods that follow with the correct category (a or b). -Cash payback method

Determine the average rate of return for a project that is estimated to yield total income of $250,000 over four years, cost $480,000, and has a $20,000 residual value.

A series of equal cash flows at fixed intervals is termed a (n)

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

Filters

Exam 25: Capital Investment Analysis

Which of the following is a method of analyzing capital investment proposals that ignores present value?

The production department is proposing the purchase of an automatic insertion machine. It has identified three machines and has asked the accountant to analyze them to determine the best cash payback. Which machine has the best payback period?​

Which of the following can be used to place capital investment proposals involving different amounts of investment on a comparable basis for purposes of net present value analysis?

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

Match each definition that follows with the term (a-e) it defines. -Also referred to as capital budgeting

Match each definition that follows with the term (a-f) it defines. -A formal means of analyzing long-range investment decisions

The amount of the estimated average income for a proposed investment of $90,000 in a fixed asset, giving effect to depreciation (straight-line method), with a useful life of four years, no residual value, and an expected total income yield of $25,300, is

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 amount of the average investment for a proposed investment of $120,000 in a fixed asset with a useful life of four years, straight-line depreciation, no residual value, and an expected total net income of $21,600 for the four years is

Match each of the methods that follow with the correct category (a or b). -Cash payback method

Determine the average rate of return for a project that is estimated to yield total income of $250,000 over four years, cost $480,000, and has a $20,000 residual value.

A series of equal cash flows at fixed intervals is termed a (n)

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

Filters

The production department is proposing the purchase of an automatic insertion machine. It has identified three machines and has asked the accountant to analyze them to determine the best cash payback. Which machine has the best payback period?