Question 1

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. C

Question 2

The cash payback technique

Accepted Answer

A)  should be used as a final screening tool. 
B)  can be the only basis for the capital budgeting decision. 
C)  is relatively easy to compute and understand. 
D)  considers the expected profitability of a project. 
A)  should be used as a final screening tool. 
B)  can be the only basis for the capital budgeting decision. 
C)  is relatively easy to compute and understand. 
D)  considers the expected profitability of a project. C

Question 3

Which of the following ignores the time value of money?

Accepted Answer

A)  Internal rate of return 
B)  Profitability index 
C)  Net present value 
D)  Cash payback 
A)  Internal rate of return 
B)  Profitability index 
C)  Net present value 
D)  Cash payback D

Question 4

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 5

If project A has a lower internal rate of return than project B, then project A will have a

Accepted Answer

A)  lower NPV and a shorter payback period. 
B)  higher NPV and a longer payback period. 
C)  lower NPV and a longer payback period. 
D)  higher NPV and a shorter payback period. 
A)  lower NPV and a shorter payback period. 
B)  higher NPV and a longer payback period. 
C)  lower NPV and a longer payback period. 
D)  higher NPV and a shorter payback period.

Question 6

The capital budgeting method that allows comparison of the relative desirability of projects that require differing initial investments 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 7

Using a number of outcome estimates to get a sense of the variability among potential returns is

Accepted Answer

A)  financial analysis. 
B)  post-audit analysis. 
C)  sensitivity analysis. 
D)  outcome analysis. 
A)  financial analysis. 
B)  post-audit analysis. 
C)  sensitivity analysis. 
D)  outcome analysis.

Question 8

A company is considering purchasing a machine that costs $280,000 and is estimated to have no salvage value at the end of its 8-year useful life. If the machine is purchased, annual revenues are expected to be $100,000 and annual operating expenses exclusive of depreciation expense are expected to be $38,000. The straight-line method of depreciation would be used. If the machine is purchased, the annual rate of return expected on this machine is

Accepted Answer

A)  22.1%. 
B)  44.3%. 
C)  9.6%. 
D)  19.3%. 
A)  22.1%. 
B)  44.3%. 
C)  9.6%. 
D)  19.3%.

Question 9

Use the following table for questions 109-111. $\text { Present Value of an Annuity of } 1$
$\begin{array}{rrrr}\text { Periods } & 8 \% & 9 \% & 10\%\
1 & .926 & .917 & .909 \
2 & 1.783 & 1.759 & 1.736 \
3 & 2.577 & 2.531 & 2.487
\end{array}$
-A company has a minimum required rate of return of 8%. It is considering investing in a project that costs $91,116 and is expected to generate cash inflows of $36,000 each year for three years. The approximate internal rate of return on this project is

Accepted Answer

A)  8%. 
B)  9%. 
C)  10%. 
D)  less than the required 8%. 
A)  8%. 
B)  9%. 
C)  10%. 
D)  less than the required 8%.

Question 10

Garza Company is considering buying equipment for $320,000 with a useful life of five years and an estimated salvage value of $16,000. If annual expected income is $28,000, the denominator in computing the annual rate of return is

Accepted Answer

A)  $320,000. 
B)  $160,000. 
C)  $168,000. 
D)  $336,000. 
A)  $320,000. 
B)  $160,000. 
C)  $168,000. 
D)  $336,000.

Question 11

A company projects an increase in net income of $135,000 each year for the next five years if it invests $900,000 in new equipment. The equipment has a five-year life and an estimated salvage value of $300,000. What is the annual rate of return on this investment?

Accepted Answer

A)  15.0% 
B)  22.5% 
C)  30.0% 
D)  34.5% 
A)  15.0% 
B)  22.5% 
C)  30.0% 
D)  34.5%

Question 12

A thorough evaluation of how well a project's actual performance matches the projections made when the project was proposed is called a

Accepted Answer

A)  pre-audit. 
B)  post-audit. 
C)  risk analysis. 
D)  sensitivity analysis. 
A)  pre-audit. 
B)  post-audit. 
C)  risk analysis. 
D)  sensitivity analysis.

Question 13

Use the following table, $\text { Present Value of an Annuity of } 1$
$\begin{array}{rrrr}\text { Periods } & 8 \% & 9 \% & 10\%\
1 & .926 & .917 & .909 \
2 & 1.783 & 1.759 & 1.736 \
3 & 2.577 & 2.531 & 2.487
\end{array}$ A company has a minimum required rate of return of 9%. It is considering investing in a project which costs $350,000 and is expected to generate cash inflows of $140,000 at the end of each year for three years. The net present value of this project is

Accepted Answer

A)  $354,340. 
B)  $70,000. 
C)  $35,436. 
D)  $4,340. 
A)  $354,340. 
B)  $70,000. 
C)  $35,436. 
D)  $4,340.

Question 14

A negative net present value indicates that the

Accepted Answer

A)  project is acceptable. 
B)  wrong discount rate was used. 
C)  project's annual rate of return exceeds the discount rate. 
D)  present value of the cash inflows was less than the present value of the cash out flows. 
A)  project is acceptable. 
B)  wrong discount rate was used. 
C)  project's annual rate of return exceeds the discount rate. 
D)  present value of the cash inflows was less than the present value of the cash out flows.

Question 15

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 16

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 17

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 18

When the annual cash flows from an investment are unequal, the appropriate table to use is the

Accepted Answer

A)  future value of 1 table. 
B)  future value of annuity table. 
C)  present value of 1 table. 
D)  present value of annuity table. 
A)  future value of 1 table. 
B)  future value of annuity table. 
C)  present value of 1 table. 
D)  present value of annuity table.

Question 19

The interest yield of a project is a rate that will cause the present value of the proposed capital expenditure to equal the present value of the expected annual cash inflows.

Accepted Answer

A) True 
 B)False

Question 20

The capital budgeting technique that indicates the profitability of a capital expenditure is the

Accepted Answer

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

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

The cash payback technique

Which of the following ignores the time value of money?

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

If project A has a lower internal rate of return than project B, then project A will have a

The capital budgeting method that allows comparison of the relative desirability of projects that require differing initial investments is the

Using a number of outcome estimates to get a sense of the variability among potential returns is

Garza Company is considering buying equipment for $320,000 with a useful life of five years and an estimated salvage value of $16,000. If annual expected income is $28,000, the denominator in computing the annual rate of return is

A company projects an increase in net income of $135,000 each year for the next five years if it invests $900,000 in new equipment. The equipment has a five-year life and an estimated salvage value of $300,000. What is the annual rate of return on this investment?

A thorough evaluation of how well a project's actual performance matches the projections made when the project was proposed is called a

A negative net present value indicates that the

Capital budgeting is the process

In capital budgeting, intangible benefits should be

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

When the annual cash flows from an investment are unequal, the appropriate table to use is the

The interest yield of a project is a rate that will cause the present value of the proposed capital expenditure to equal the present value of the expected annual cash inflows.

The capital budgeting technique that indicates the profitability of a capital expenditure is the

Managerial Accounting

Job Order Costing

Process Costing

Activity-Based Costing

Cost-Volume-Profit

Cost-Volume-Profit Analysis: Additional Issues

Incremental Analysis

Pricing

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Statement of Cash Flows

Financial Statement Analysis

Filters

Exam 12: Planning for Capital Investments

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

The cash payback technique

Which of the following ignores the time value of money?

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

If project A has a lower internal rate of return than project B, then project A will have a

The capital budgeting method that allows comparison of the relative desirability of projects that require differing initial investments is the

Using a number of outcome estimates to get a sense of the variability among potential returns is

Garza Company is considering buying equipment for $320,000 with a useful life of five years and an estimated salvage value of $16,000. If annual expected income is $28,000, the denominator in computing the annual rate of return is

A company projects an increase in net income of $135,000 each year for the next five years if it invests $900,000 in new equipment. The equipment has a five-year life and an estimated salvage value of $300,000. What is the annual rate of return on this investment?

A thorough evaluation of how well a project's actual performance matches the projections made when the project was proposed is called a

A negative net present value indicates that the

Capital budgeting is the process

In capital budgeting, intangible benefits should be

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

When the annual cash flows from an investment are unequal, the appropriate table to use is the

The interest yield of a project is a rate that will cause the present value of the proposed capital expenditure to equal the present value of the expected annual cash inflows.

The capital budgeting technique that indicates the profitability of a capital expenditure is the

Managerial Accounting

Job Order Costing

Process Costing

Activity-Based Costing

Cost-Volume-Profit

Cost-Volume-Profit Analysis: Additional Issues

Incremental Analysis

Pricing

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Statement of Cash Flows

Financial Statement Analysis

Filters