Question 1

The internal rate of return is the

Accepted Answer

A)  rate of return that sets the project's net present value equal to zero. 
B)  hurdle rate. 
C)  cost of capital. 
D)  required rate of return. 
A)  rate of return that sets the project's net present value equal to zero. 
B)  hurdle rate. 
C)  cost of capital. 
D)  required rate of return.

Question 2

Which of the following methods uses income instead of cash flows?

Accepted Answer

A)  payback 
B)  accounting rate of return 
C)  internal rate of return 
D)  net present value 
A)  payback 
B)  accounting rate of return 
C)  internal rate of return 
D)  net present value

Question 3

The present value of £2,000 to be received three years from now and earning a 12 per cent return is

Accepted Answer

A)  £1,424. 
B)  £1,760. 
C)  £2,440. 
D)  £2,720. 
A)  £1,424. 
B)  £1,760. 
C)  £2,440. 
D)  £2,720.

Question 4

-Refer to Figure 13-2. The present value of the annual net cash inflows from operations is

Accepted Answer

A)  £77,740. 
B)  £86,669. 
C)  £116,411. 
D)  £124,200. 
A)  £77,740. 
B)  £86,669. 
C)  £116,411. 
D)  £124,200.

Question 5

Which of the following is NOT included in the calculation of net present value of a proposed project? (Ignore income taxes.)

Accepted Answer

A)  salvage value 
B)  working capital 
C)  discount rate 
D)  depreciation expense 
A)  salvage value 
B)  working capital 
C)  discount rate 
D)  depreciation expense

Question 6

Figure 13-6
JD, Inc., is considering the purchase of production equipment that costs £400,000. The equipment is expected to generate annual cash inflows of £125,000. The equipment is expected to have a useful life of five years with no salvage value. The firm's cost of capital is 12 per cent.
-Refer to Figure 13-6. JD's payback for the project is

Accepted Answer

A)  2.9 years. 
B)  3.2 years. 
C)  3.25 years. 
D)  4.2 years. 
A)  2.9 years. 
B)  3.2 years. 
C)  3.25 years. 
D)  4.2 years.

Question 7

A capital investment project requires an investment of £1,000,000. It has an expected life of five years with annual cash flows of £240,000 received at the end of each year.
Required:
a.
Compute payback for the project.
b.
Compute the internal rate of return for the project.
c.
Compute the net present value of the project using a 12 per cent discount rate. Ignore income taxes.
d.
Would you recommend this project be accepted? Why or why not?

Accepted Answer

The answer of A capital investment project requires an investment...

Question 8

A capital investment project requires an investment of £450,000. It has an expected life of six years with an annual cash flow of £90,000 received at the end of each year. The company uses the straight-line method of depreciation. Ignore income taxes.
Required:
a.
Compute payback for the project.
b.
Compute the net present value of the project using a 12 per cent discount rate.
c.
Would you recommend this project be accepted? Why or why not?

Accepted Answer

The answer of A capital investment project requires an investment...

Question 9

If the annual cash flows are an annuity (equal each period), payback is calculated as

Accepted Answer

A)  Annual net cash inflows/Capital investment. 
B)  Capital investment/Annual net cash inflows. 
C)  Annual net cash inflows/Present value factor. 
D)  (Annual net cash inflows - Annual depreciation)/Capital investment. 
A)  Annual net cash inflows/Capital investment. 
B)  Capital investment/Annual net cash inflows. 
C)  Annual net cash inflows/Present value factor. 
D)  (Annual net cash inflows - Annual depreciation)/Capital investment.

Question 10

(Memorandum required)
Simon Enterprises is considering the purchase of a flexible manufacturing system. The savings associated with the system are estimated to be as follows:   The system will cost £400,000 and will last ten years. The system would have a salvage value of £30,000 at the end of ten years. The company's cost of capital is 8 per cent.
Required:
Prepare a memorandum to management with your recommendation regarding whether Simon Enterprises should purchase the flexible manufacturing system. Include a discussion of qualitative factors that might influence management's decision. Include your supporting calculations (including NPV analysis.)

Accepted Answer

@#IMG-DLM& SUPPORTING CALCULAT

Question 11

The time required for a project to return its investment is the

Accepted Answer

A)  accounting rate of return. 
B)  interest. 
C)  net present value. 
D)  payback period. 
A)  accounting rate of return. 
B)  interest. 
C)  net present value. 
D)  payback period.

Question 12

Lewis Manufacturing Company is planning to invest in equipment costing £240,000. The estimated cash flows from this equipment are expected to be as follows:   Assume that the cash inflows occur evenly over the year. The payback period for this investment is

Accepted Answer

A)  3.75 years. 
B)  3.25 years. 
C)  2.4 years. 
D)  1.3 years. 
A)  3.75 years. 
B)  3.25 years. 
C)  2.4 years. 
D)  1.3 years.

Question 13

Figure 13-6
JD, Inc., is considering the purchase of production equipment that costs £400,000. The equipment is expected to generate annual cash inflows of £125,000. The equipment is expected to have a useful life of five years with no salvage value. The firm's cost of capital is 12 per cent.
-Refer to Figure 13-6. JD's net present value of the project is

Accepted Answer

A)  £40,480. 
B)  £48,625. 
C)  £50,625. 
D)  £54,450. 
A)  £40,480. 
B)  £48,625. 
C)  £50,625. 
D)  £54,450.

Question 14

Figure 13-4
A capital investment project requires an investment of £60,000 and has an expected life of four years. Annual cash flows, which occur evenly throughout the year, are expected to be as follows:  
-Refer to Figure 13-4. Payback for the project is

Accepted Answer

A)  2.25 years. 
B)  2.5 years. 
C)  3 years. 
D)  2 years. 
A)  2.25 years. 
B)  2.5 years. 
C)  3 years. 
D)  2 years.

Question 15

Van Dyke Company is evaluating a capital expenditure proposal that has the following predicted cash flows:   Required:
Determine the following values: 
a.
Net present value of the investment
b.
Proposal's internal rate of return
c.
Payback period

Accepted Answer

The answer of Van Dyke Company is evaluating a capital...

Question 16

Figure 13-1
A project requires an investment of £90,000 in equipment. Annual cash inflows of £15,000 are expected to occur for the next ten years. No salvage value is expected.
-Refer to Figure 13-1. If the annual cash inflows occur throughout the year, payback for the project would be

Accepted Answer

A)  4.5 years. 
B)  4.8 years. 
C)  5 years. 
D)  6 years. 
A)  4.5 years. 
B)  4.8 years. 
C)  5 years. 
D)  6 years.

Question 17

A company invests in a project that realizes an internal rate of return equal to its cost of capital. This project should:

Accepted Answer

A)  increase the value of the company. 
B)  have little or no effect on the value of the company. 
C)  decrease the value of the company. 
D)  cause the company to realize an infinite net present value. 
A)  increase the value of the company. 
B)  have little or no effect on the value of the company. 
C)  decrease the value of the company. 
D)  cause the company to realize an infinite net present value.

Question 18

Kaylin Company purchased a piece of equipment for £100,000 that had a useful life of 5 years. The equipment had no salvage value. It saves the company £40,000 a year and costs the company £5,000 a year to operate. What is the accounting rate of return on the equipment?

Accepted Answer

A)  30% 
B)  15% 
C)  40% 
D)  35% 
A)  30% 
B)  15% 
C)  40% 
D)  35%

Question 19

A firm is considering a project with annual cash flows of £40,000. The project would have a 10-year life, and the company uses a discount rate of 8 per cent. What is the maximum amount the company could invest in the project and the project still be acceptable?

Accepted Answer

A)  £400,000 
B)  £268,400 
C)  £203,200 
D)  £363,600 
A)  £400,000 
B)  £268,400 
C)  £203,200 
D)  £363,600

Question 20

How is working capital needed in the operations of investments treated in discounted cash flow analysis?

Accepted Answer

A)  added to cost of the investment 
B)  added to cash inflows when recovery occurs 
C)  both a and b 
D)  none of the above 
A)  added to cost of the investment 
B)  added to cash inflows when recovery occurs 
C)  both a and b 
D)  none of the above

The internal rate of return is the

Which of the following methods uses income instead of cash flows?

The present value of £2,000 to be received three years from now and earning a 12 per cent return is

-Refer to Figure 13-2. The present value of the annual net cash inflows from operations is

Which of the following is NOT included in the calculation of net present value of a proposed project? (Ignore income taxes.)

If the annual cash flows are an annuity (equal each period), payback is calculated as

The time required for a project to return its investment is the

Lewis Manufacturing Company is planning to invest in equipment costing £240,000. The estimated cash flows from this equipment are expected to be as follows: Assume that the cash inflows occur evenly over the year. The payback period for this investment is

Figure 13-4 A capital investment project requires an investment of £60,000 and has an expected life of four years. Annual cash flows, which occur evenly throughout the year, are expected to be as follows: -Refer to Figure 13-4. Payback for the project is

Van Dyke Company is evaluating a capital expenditure proposal that has the following predicted cash flows: Required: Determine the following values: a. Net present value of the investment b. Proposal's internal rate of return c. Payback period

Figure 13-1 A project requires an investment of £90,000 in equipment. Annual cash inflows of £15,000 are expected to occur for the next ten years. No salvage value is expected. -Refer to Figure 13-1. If the annual cash inflows occur throughout the year, payback for the project would be

A company invests in a project that realizes an internal rate of return equal to its cost of capital. This project should:

Kaylin Company purchased a piece of equipment for £100,000 that had a useful life of 5 years. The equipment had no salvage value. It saves the company £40,000 a year and costs the company £5,000 a year to operate. What is the accounting rate of return on the equipment?

A firm is considering a project with annual cash flows of £40,000. The project would have a 10-year life, and the company uses a discount rate of 8 per cent. What is the maximum amount the company could invest in the project and the project still be acceptable?

How is working capital needed in the operations of investments treated in discounted cash flow analysis?

Introduction to Management Accounting

An Introduction to Cost Terms and Concepts

Cost Assignment

Accounting Entries for a Job Costing System

Process Costing

Joint and By-Product Costing

Income Effects of Alternative Cost Accumulation Systems

Cost-Volume-Profit Analysis

Measuring Relevant Costs and Revenues for Decision-Making

Activity-Based Costing

Pricing Decisions and Profitability Analysis

Decision-Making Under Conditions of Risk and Uncertainty

Capital Investment Decisions: the Impact of Capital Rationing, Taxation, Inflation and Risk

The Budgeting Process

Management Control Systems

Standard Costing and Variance Analysis 1

Standard Costing and Variance Analysis 2: Further Aspects

Divisional Financial Performance Measures

Transfer Pricing in Divisionalized Companies

Cost Management

Strategic Management Accounting

Cost Estimation and Cost Behaviour

Quantitative Models for the Planning and Control of Stocks

The Application of Linear Programming to Management Accounting

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Exam 13: Capital Investment Decisions: Appraisal Methods

The internal rate of return is the

Which of the following methods uses income instead of cash flows?

The present value of £2,000 to be received three years from now and earning a 12 per cent return is

-Refer to Figure 13-2. The present value of the annual net cash inflows from operations is

Which of the following is NOT included in the calculation of net present value of a proposed project? (Ignore income taxes.)

If the annual cash flows are an annuity (equal each period), payback is calculated as

The time required for a project to return its investment is the

Lewis Manufacturing Company is planning to invest in equipment costing £240,000. The estimated cash flows from this equipment are expected to be as follows: Assume that the cash inflows occur evenly over the year. The payback period for this investment is

Figure 13-4 A capital investment project requires an investment of £60,000 and has an expected life of four years. Annual cash flows, which occur evenly throughout the year, are expected to be as follows: -Refer to Figure 13-4. Payback for the project is

Van Dyke Company is evaluating a capital expenditure proposal that has the following predicted cash flows: Required: Determine the following values: a. Net present value of the investment b. Proposal's internal rate of return c. Payback period

Figure 13-1 A project requires an investment of £90,000 in equipment. Annual cash inflows of £15,000 are expected to occur for the next ten years. No salvage value is expected. -Refer to Figure 13-1. If the annual cash inflows occur throughout the year, payback for the project would be

A company invests in a project that realizes an internal rate of return equal to its cost of capital. This project should:

Kaylin Company purchased a piece of equipment for £100,000 that had a useful life of 5 years. The equipment had no salvage value. It saves the company £40,000 a year and costs the company £5,000 a year to operate. What is the accounting rate of return on the equipment?

A firm is considering a project with annual cash flows of £40,000. The project would have a 10-year life, and the company uses a discount rate of 8 per cent. What is the maximum amount the company could invest in the project and the project still be acceptable?

How is working capital needed in the operations of investments treated in discounted cash flow analysis?

Introduction to Management Accounting

An Introduction to Cost Terms and Concepts

Cost Assignment

Accounting Entries for a Job Costing System

Process Costing

Joint and By-Product Costing

Income Effects of Alternative Cost Accumulation Systems

Cost-Volume-Profit Analysis

Measuring Relevant Costs and Revenues for Decision-Making

Activity-Based Costing

Pricing Decisions and Profitability Analysis

Decision-Making Under Conditions of Risk and Uncertainty

Capital Investment Decisions: the Impact of Capital Rationing, Taxation, Inflation and Risk

The Budgeting Process

Management Control Systems

Standard Costing and Variance Analysis 1

Standard Costing and Variance Analysis 2: Further Aspects

Divisional Financial Performance Measures

Transfer Pricing in Divisionalized Companies

Cost Management

Strategic Management Accounting

Cost Estimation and Cost Behaviour

Quantitative Models for the Planning and Control of Stocks

The Application of Linear Programming to Management Accounting

Filters