Question 1

Disadvantages of the annual rate of return method include all of the following except that

Accepted Answer

A)  it relies on accrual accounting numbers instead of actual cash flows. 
B)  it does not consider the time value of money. 
C)  no consideration is given as to when the cash inflows occur. 
D)  management is unfamiliar with the information used in the computation. 
A)  it relies on accrual accounting numbers instead of actual cash flows. 
B)  it does not consider the time value of money. 
C)  no consideration is given as to when the cash inflows occur. 
D)  management is unfamiliar with the information used in the computation.

Question 2

The capital budgeting decision depends in part on the

Accepted Answer

A)  availability of funds. 
B)  relationships among proposed projects. 
C)  risk associated with a particular project. 
D)  All of these answers are correct. 
A)  availability of funds. 
B)  relationships among proposed projects. 
C)  risk associated with a particular project. 
D)  All of these answers are correct.

Question 3

The annual rate of return is computed by dividing expected annual

Accepted Answer

A)  cash inflows by average investment. 
B)  net income by average investment. 
C)  cash inflows by original investment. 
D)  net income by original investment. 
A)  cash inflows by average investment. 
B)  net income by average investment. 
C)  cash inflows by original investment. 
D)  net income by original investment.

Question 4

If a project's profitability index is less than 1, then

Accepted Answer

A)  its net present value is zero. 
B)  its net present value is positive. 
C)  it should be rejected. 
D)  its internal rate of return is greater than the discount rate. 
A)  its net present value is zero. 
B)  its net present value is positive. 
C)  it should be rejected. 
D)  its internal rate of return is greater than the discount rate.

Question 5

To avoid accepting projects that actually should be rejected, a company should ignore intangible benefits in calculating net present value.

Accepted Answer

A) True 
 B)False

Question 6

The primary capital budgeting method that uses discounted cash flow techniques is the

Accepted Answer

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

Question 7

A post-audit should be performed using

Accepted Answer

A)  a different evaluation technique than that used in making the original decision. 
B)  the same evaluation technique used in making the original decision. 
C)  estimated amounts instead of actual figures. 
D)  an independent CPA. 
A)  a different evaluation technique than that used in making the original decision. 
B)  the same evaluation technique used in making the original decision. 
C)  estimated amounts instead of actual figures. 
D)  an independent CPA.

Question 8

Mini Inc. is contemplating a capital project costing $47,019. The project will provide annual cost savings of $18,000 for 3 years and have a salvage value of $3,000. The company's required rate of return is 10%. The company uses straight-line depreciation. $\begin{array}{llr}\text { Year } & \begin{array}{l}
\text { Present Value } \
\text { of } 1 \text { at } 10 \%
\end{array} & \begin{array}{l}
\text { PV of an Annuity } \
\text { of } 1 \text { at } 10 \%
\end{array} \
1 & .909 & .909 \
2 & .826 & 1.736 \
3 & .751 & 2.487
\end{array}$ This project is

Accepted Answer

A)  unacceptable because it earns a rate less than 10%. 
B)  acceptable because it has a positive NPV. 
C)  unacceptable because it has a negative NPV. 
D)  acceptable because it has a zero NPV. 
A)  unacceptable because it earns a rate less than 10%. 
B)  acceptable because it has a positive NPV. 
C)  unacceptable because it has a negative NPV. 
D)  acceptable because it has a zero NPV.

Question 9

A post-audit is an evaluation of how well a project's actual performance matches the projections made when the project was proposed.

Accepted Answer

A) True 
 B)False

Question 10

If a payback period for a project is greater than its expected useful life, the

Accepted Answer

A)  project will always be profitable. 
B)  entire initial investment will not be recovered. 
C)  project would only be acceptable if the company's cost of capital was low. 
D)  project's return will always exceed the company's cost of capital. 
A)  project will always be profitable. 
B)  entire initial investment will not be recovered. 
C)  project would only be acceptable if the company's cost of capital was low. 
D)  project's return will always exceed the company's cost of capital.

Question 11

Intangible benefits in capital budgeting

Accepted Answer

A)  should be ignored because they are difficult to determine. 
B)  include increased quality or employee loyalty. 
C)  are not considered because they are usually not relevant to the decision. 
D)  have a rate of return in excess of the company's cost of capital. 
A)  should be ignored because they are difficult to determine. 
B)  include increased quality or employee loyalty. 
C)  are not considered because they are usually not relevant to the decision. 
D)  have a rate of return in excess of the company's cost of capital.

Question 12

Mussina Company had an investment which cost $250,000 and had a salvage value at the end of its useful life of zero. If Mussina's expected annual net income is $15,000, the annual rate of return is:

Accepted Answer

A)  6.0%. 
B)  10.2%. 
C)  12.0%. 
D)  15.0%. 
A)  6.0%. 
B)  10.2%. 
C)  12.0%. 
D)  15.0%.

Question 13

A disadvantage of the cash payback technique is that it

Accepted Answer

A)  ignores obsolescence factors. 
B)  ignores the cost of an investment. 
C)  is complicated to use. 
D)  ignores the time value of money. 
A)  ignores obsolescence factors. 
B)  ignores the cost of an investment. 
C)  is complicated to use. 
D)  ignores the time value of money.

Disadvantages of the annual rate of return method include all of the following except that

The capital budgeting decision depends in part on the

The annual rate of return is computed by dividing expected annual

If a project's profitability index is less than 1, then

To avoid accepting projects that actually should be rejected, a company should ignore intangible benefits in calculating net present value.

The primary capital budgeting method that uses discounted cash flow techniques is the

A post-audit should be performed using

A post-audit is an evaluation of how well a project's actual performance matches the projections made when the project was proposed.

If a payback period for a project is greater than its expected useful life, the

Intangible benefits in capital budgeting

Mussina Company had an investment which cost $250,000 and had a salvage value at the end of its useful life of zero. If Mussina's expected annual net income is $15,000, the annual rate of return is:

A disadvantage of the cash payback technique is that it

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

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Exam 12: Planning for Capital Investments

Disadvantages of the annual rate of return method include all of the following except that

The capital budgeting decision depends in part on the

The annual rate of return is computed by dividing expected annual

If a project's profitability index is less than 1, then

To avoid accepting projects that actually should be rejected, a company should ignore intangible benefits in calculating net present value.

The primary capital budgeting method that uses discounted cash flow techniques is the

A post-audit should be performed using

A post-audit is an evaluation of how well a project's actual performance matches the projections made when the project was proposed.

If a payback period for a project is greater than its expected useful life, the

Intangible benefits in capital budgeting

Mussina Company had an investment which cost $250,000 and had a salvage value at the end of its useful life of zero. If Mussina's expected annual net income is $15,000, the annual rate of return is:

A disadvantage of the cash payback technique is that it

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