Exam 12: Planning for Capital Investments

The following information is available for a potential investment for Panda Company: Initial investment \ 95,000 Net annual cash inflow 20,000 Net present value 36,224 Salvage value 10,000 Useful life 10 yrs. The potential investment's profitability index is

The capital budget for the year is approved by a company's

The cash payback technique is a quick way to calculate a project's net present value.

Use the following information for questions 112-115. Carr Company is considering two capital investment proposals. Estimates regarding each project are provided below: Project Soup Project Nuts Initial investment \ 400,000 \ 600,000 Annual net income 30,000 46,000 Net annual cash inflow 110,000 146,000 Estimated useful life 5 years 6 years Salvage value -0- -0- $\text { The company requires a } 10 \% \text { rate of return on all new investments. }$ $\text { Present Value of an Annuity of } 1$ Periods 9\% 10\% 11\% 12\% 5 3.890 3.791 3.696 3.605 6 4.486 4.355 4.231 4.111 -The net present value for Project Nuts is

Performing a post-audit is important because

Companies often assume that the risk element in the discount rate is

Which of the following will cause the internal rate of return to increase?

Nance Company is considering buying a machine for $90,000 with an estimated life of ten years and no salvage value. The straight-line method of depreciation will be used. The machine is expected to generate net income of $3,000 each year. The cash payback on this investment is

Net annual cash flow can be estimated by

When using the cash payback technique, the payback period is expressed in terms of

Bradshaw Inc. is contemplating a capital investment of $88,000. The cash flows over the project's four years are: Expected Annual Expected Annual Year Cash Inflows Cash Outflows 1 \ 30,000 \ 12,000 2 45,000 20,000 3 60,000 25,000 4 50,000 30,000 The cash payback period is

Sensitivity analysis uses a number of outcome estimates to get a sense of the variability among potential returns.

All of the following statements about the internal rate of return method are correct except that it

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

Intangible benefits in capital budgeting would include all of the following except increased

If project A has a lower payback period than project B, this may indicate that project A may have a

Benaflek Co. purchased some equipment 3 years ago. The company's required rate of return is 12%, and the net present value of the project was $(1,800). Annual cost savings were: $20,000 for year 1; $16,000 for year 2; and $12,000 for year 3. The amount of the initial investment was Year Present Value PV of an Annuity of 1 at 12\% of 1 at 12\% 1 .893 .893 2 .797 1.690 3 .712 2.402

Use the following information for questions 112-115. Carr Company is considering two capital investment proposals. Estimates regarding each project are provided below: Project Soup Project Nuts Initial investment \ 400,000 \ 600,000 Annual net income 30,000 46,000 Net annual cash inflow 110,000 146,000 Estimated useful life 5 years 6 years Salvage value -0- -0- $\text { The company requires a } 10 \% \text { rate of return on all new investments. }$ $\text { Present Value of an Annuity of } 1$ Periods 9\% 10\% 11\% 12\% 5 3.890 3.791 3.696 3.605 6 4.486 4.355 4.231 4.111 -The annual rate of return for Project Soup is

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

Using the profitability index method, the present value of cash inflows for Project Flower is $88,000 and the present value of cash inflows of Project Plant is $48,000. If Project Flower and Project Plant require initial investments of $90,000 and $40,000, respectively, and have the same useful life, the project that should be accepted is