Question 1

An investment of $60,000 will return $18,000 per year. What is its payback period?

Accepted Answer

A)  2 years 
B)  3 years 
C)  3.33 years 
D)  4 years 
A)  2 years 
B)  3 years 
C)  3.33 years 
D)  4 years

Question 2

The incremental cash tax flow for a capital budgeting project is calculated using which of the following formulas?

Accepted Answer

A)  Annual amortization × marginal income tax rate 
B)  Annual amortization × (1 - marginal income tax rate) 
C)  (Operating cash flow + annual amortization) × marginal income tax rate 
D)  Operating cash flow × marginal income tax rate 
A)  Annual amortization × marginal income tax rate 
B)  Annual amortization × (1 - marginal income tax rate) 
C)  (Operating cash flow + annual amortization) × marginal income tax rate 
D)  Operating cash flow × marginal income tax rate

Question 3

A firm's required rate of return is the rate which makes the:

Accepted Answer

A)  Net present value equal to zero. 
B)  Internal rate of return equal to the average rate of return. 
C)  Profitability index greater than zero. 
D)  Determination of the NPV possible. 
A)  Net present value equal to zero. 
B)  Internal rate of return equal to the average rate of return. 
C)  Profitability index greater than zero. 
D)  Determination of the NPV possible.

Question 4

Early, Inc. has chosen four potential investment projects. Listed below are some relevant data on these projects: $\begin{array}{lrr}\text { Project }&\text { Investment }&\text { Net Present Value }\\hline
1 & \$ 125,000 & \$ 62,500 \
2 & 150,000 & 45,000 \
3 & 75,000 & 52,500 \
4 & 112,500 & 45,000
\end{array}$ Use the profitability index to rank these investments in terms of preference:

Accepted Answer

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

Question 5

Disquotek, Inc., is a software manufacturer. Managers are considering a new equipment proposal. The income tax rate is 40%, and the discount rate is 10%. The following data are available: $\begin{array}{lrc}
& \underline{\text { Old Equipment}}&
 \underline{\text { New Equipment}}\
 \text { Purchase cost } & \$ 12,000 & \$ 36,000 \
\text { Annual amortization } & 1,500 & 4,500 \
\text { Remaining useful life (years) } & 8 & 8 \
\text { Current selling price } & 14,400 & \text { not applicable } \
\text { Selling price in 8 years } & 1,000 & 2,000 \
\text { Annual operating costs } & 14,000 & 8,000
\end{array}$
 The after-tax cash flows from selling the old equipment are:

Accepted Answer

A)  $12,000 
B)  $13,440 
C)  $12,960 
D)  $11,040 
A)  $12,000 
B)  $13,440 
C)  $12,960 
D)  $11,040

Question 6

Bern Company invested in a project that cost $100,000. It had a net present value of $15,975 and a useful life of 8 years. The firm uses a 14% discount rate, and the project has an internal rate of return of 16%. What are the annual cost savings provided by the project?

Accepted Answer

A)  $25,000 
B)  $26,698 
C)  $9,263 
D)  $8,600 
A)  $25,000 
B)  $26,698 
C)  $9,263 
D)  $8,600

Question 7

Some of the steps in the process for addressing capital budgeting decisions are listed below. Which lettered choice puts the steps in the proper order?
1) Identify relevant cash flows.
2) Perform sensitivity analysis.
3) Apply quantitative techniques.

Accepted Answer

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

Question 8

Phoxco is considering automating its production line at a cost of $40,000 to acquire the necessary equipment. The annual cost savings are expected to be $8,000 for 14 years. The firm requires a 20% rate of return. Ignore income taxes.
What is the internal rate of return on this investment?

Accepted Answer

A)  Less than 20% 
B)  Equal to 20% 
C)  More than 20% 
D)  Cannot be determined 
A)  Less than 20% 
B)  Equal to 20% 
C)  More than 20% 
D)  Cannot be determined

Question 9

You are currently entering college and you want to buy your uncle's Mercedes when you graduate. He has promised to sell it to you for $18,000. How much will you have to deposit now, in an account earning 8%, to have enough money to buy the car in 4 years?

Accepted Answer

A)  $6,122 
B)  $4,500 
C)  $13,230 
D)  $3,060 
A)  $6,122 
B)  $4,500 
C)  $13,230 
D)  $3,060

An investment of $60,000 will return $18,000 per year. What is its payback period?

The incremental cash tax flow for a capital budgeting project is calculated using which of the following formulas?

A firm's required rate of return is the rate which makes the:

Early, Inc. has chosen four potential investment projects. Listed below are some relevant data on these projects: Project Investment Net Present Value 1 \ 125,000 \ 62,500 2 150,000 45,000 3 75,000 52,500 4 112,500 45,000 Use the profitability index to rank these investments in terms of preference:

Bern Company invested in a project that cost $100,000. It had a net present value of $15,975 and a useful life of 8 years. The firm uses a 14% discount rate, and the project has an internal rate of return of 16%. What are the annual cost savings provided by the project?

Some of the steps in the process for addressing capital budgeting decisions are listed below. Which lettered choice puts the steps in the proper order? 1) Identify relevant cash flows. 2) Perform sensitivity analysis. 3) Apply quantitative techniques.

Phoxco is considering automating its production line at a cost of $40,000 to acquire the necessary equipment. The annual cost savings are expected to be $8,000 for 14 years. The firm requires a 20% rate of return. Ignore income taxes. What is the internal rate of return on this investment?

You are currently entering college and you want to buy your uncle's Mercedes when you graduate. He has promised to sell it to you for $18,000. How much will you have to deposit now, in an account earning 8%, to have enough money to buy the car in 4 years?

The Role of Accounting Information in Ethical Management Decision Making

Cost Concepts, Behaviour, and Estimation

Cost-Volume-Profit Analysis

Relevant Information for Decision Making

Job Costing

Process Costing

Activity-Based Costing and Management

Measuring and Assigning Support Department Costs

Joint Product and By-Product Costing

Static and Flexible Budgets

Standard Costs and Variance Analysis

Strategic Investment Decisions

Strategic Management of Costs

Measuring and Assigning Costs for Income Statements

Performance Evaluation and Compensation

Filters

Exam 13: Pricing Decisions

An investment of $60,000 will return $18,000 per year. What is its payback period?

The incremental cash tax flow for a capital budgeting project is calculated using which of the following formulas?

A firm's required rate of return is the rate which makes the:

Early, Inc. has chosen four potential investment projects. Listed below are some relevant data on these projects: Project Investment Net Present Value 1 \ 125,000 \ 62,500 2 150,000 45,000 3 75,000 52,500 4 112,500 45,000 Use the profitability index to rank these investments in terms of preference:

Bern Company invested in a project that cost $100,000. It had a net present value of $15,975 and a useful life of 8 years. The firm uses a 14% discount rate, and the project has an internal rate of return of 16%. What are the annual cost savings provided by the project?

Some of the steps in the process for addressing capital budgeting decisions are listed below. Which lettered choice puts the steps in the proper order? 1) Identify relevant cash flows. 2) Perform sensitivity analysis. 3) Apply quantitative techniques.

Phoxco is considering automating its production line at a cost of $40,000 to acquire the necessary equipment. The annual cost savings are expected to be $8,000 for 14 years. The firm requires a 20% rate of return. Ignore income taxes. What is the internal rate of return on this investment?

You are currently entering college and you want to buy your uncle's Mercedes when you graduate. He has promised to sell it to you for $18,000. How much will you have to deposit now, in an account earning 8%, to have enough money to buy the car in 4 years?

The Role of Accounting Information in Ethical Management Decision Making

Cost Concepts, Behaviour, and Estimation

Cost-Volume-Profit Analysis

Relevant Information for Decision Making

Job Costing

Process Costing

Activity-Based Costing and Management

Measuring and Assigning Support Department Costs

Joint Product and By-Product Costing

Static and Flexible Budgets

Standard Costs and Variance Analysis

Strategic Investment Decisions

Strategic Management of Costs

Measuring and Assigning Costs for Income Statements

Performance Evaluation and Compensation

Filters