Question 1

The problem with the accounting rate of return is that it fails to consider the:

Accepted Answer

A)  profitability of the project. 
B)  life of the project. 
C)  timing of cash flows. 
D)  effect on net income. 
A)  profitability of the project. 
B)  life of the project. 
C)  timing of cash flows. 
D)  effect on net income.

Question 2

Mitchell, Inc., is considering two mutually exclusive projects. Project 1 requires an investment of £80,000, while Project 2 requires an investment of £90,000.
Cash revenues and cash costs for each project are shown below:   The company estimates that at the end of the fourth year Project 1 would have a salvage value of £10,000 and Project 2 would have a salvage value of £5,000.
Required: 
a.
Determine the net present value of EACH project using an 8 per cent discount rate.
b.
Prepare a memorandum for management stating your recommendation. Include supporting calculations in good form.

Accepted Answer

@#IMG-DLM& Additional factors

Question 3

A firm is considering a project with annual cash flows of £120,000. The project would have an 8-year life, and the company uses a discount rate of 12 per cent. What is the maximum amount the company could invest in the project and the project still be acceptable?

Accepted Answer

A)  £488,740 
B)  £562,614 
C)  £580,291 
D)  £596,160 
A)  £488,740 
B)  £562,614 
C)  £580,291 
D)  £596,160

Question 4

Maxim, Inc., is considering two mutually exclusive projects. Project 1 requires an investment of £40,000, while Project 2 requires an investment of £30,000. Cash revenues and cash costs for each project are shown below.   The company estimates that at the end of the fourth year Project 1 would have a salvage value of £3,000 and Project 2 would have a salvage value of £1,000.
Required: 
a.
Determine the net present value of EACH project using a 16 per cent discount rate.
b.
Prepare a memorandum for management stating your recommendation. Include supporting calculations in good form.

Accepted Answer

The answer of Maxim, Inc., is considering two mutually exclusive...

Question 5

Figure 13-3
Glady, Inc., is considering the purchase of production equipment that costs £800,000. The equipment is expected to generate annual cash inflows of £250,000. The equipment is expected to have a useful life of five years with no salvage value. The firm's cost of capital is 14 per cent.
-Refer to Figure 13-3. Excluding the effect of income taxes, Glady's net present value of the project is

Accepted Answer

A)  £165,200. 
B)  £450,000. 
C)  £58,250. 
D)  £233,550. 
A)  £165,200. 
B)  £450,000. 
C)  £58,250. 
D)  £233,550.

Question 6

Projects that, if accepted, preclude the acceptance of competing projects are

Accepted Answer

A)  priority projects. 
B)  mutually exclusive projects. 
C)  independent projects. 
D)  equity projects. 
A)  priority projects. 
B)  mutually exclusive projects. 
C)  independent projects. 
D)  equity projects.

Question 7

A capital investment project requires an investment of £145,000 and has an expected life of four years. Annual cash flows at the end of each year are expected to be as follows:   Required: 
a.
Compute payback assuming that the cash flows occur evenly throughout the year.
b.
Compute the net present value of the project using an 8 per cent discount rate.

Accepted Answer

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

Question 8

Figure 13-3
Glady, Inc., is considering the purchase of production equipment that costs £800,000. The equipment is expected to generate annual cash inflows of £250,000. The equipment is expected to have a useful life of five years with no salvage value. The firm's cost of capital is 14 per cent.
-Refer to Figure 13-3. The approximate internal rate of return of Glady's project is

Accepted Answer

A)  16%. 
B)  20%. 
C)  24%. 
D)  25%. 
A)  16%. 
B)  20%. 
C)  24%. 
D)  25%.

Question 9

Which of the following capital investment models would be preferred when choosing among mutually exclusive alternatives?

Accepted Answer

A)  payback period 
B)  accounting rate of return 
C)  IRR 
D)  NPV 
A)  payback period 
B)  accounting rate of return 
C)  IRR 
D)  NPV

Question 10

Figure 13-5  
-Refer to Figure 13-5. The present value of the annual net cash inflows from operations is

Accepted Answer

A)  £101,416. 
B)  £101,897. 
C)  £102,168. 
D)  £104,618. 
A)  £101,416. 
B)  £101,897. 
C)  £102,168. 
D)  £104,618.

Question 11

The present value of £2,000 to be received each year for three years and earning a 10 per cent return is

Accepted Answer

A)  £5,560. 
B)  £4,974. 
C)  £4,922. 
D)  £4,600. 
A)  £5,560. 
B)  £4,974. 
C)  £4,922. 
D)  £4,600.

Question 12

-Refer to Figure 13-2. The net present value of the project is

Accepted Answer

A)  £24,500. 
B)  £36,411. 
C)  £44,200. 
D)  £46,220. 
A)  £24,500. 
B)  £36,411. 
C)  £44,200. 
D)  £46,220.

Question 13

Lake Kariba Company is considering buying a new boat that would cost £120,000. The accountant determined that the boat promises an internal rate of return of 10 per cent and has a life of four years. The accountant resigned and the president wanted to check her calculations. What were the approximate annual net cash inflows from the project?

Accepted Answer

A)  £20,490 
B)  £30,000 
C)  £37,855 
D)  Net cash inflows cannot be determined from the information given. 
A)  £20,490 
B)  £30,000 
C)  £37,855 
D)  Net cash inflows cannot be determined from the information given.

Question 14

Figure 13-3
Glady, Inc., is considering the purchase of production equipment that costs £800,000. The equipment is expected to generate annual cash inflows of £250,000. The equipment is expected to have a useful life of five years with no salvage value. The firm's cost of capital is 14 per cent.
-Refer to Figure 13-3. Payback for Glady's project is

Accepted Answer

A)  5 years. 
B)  3.2 years. 
C)  4 years. 
D)  3.125 years. 
A)  5 years. 
B)  3.2 years. 
C)  4 years. 
D)  3.125 years.

Question 15

Firms may select projects with short paybacks because

Accepted Answer

A)  projects with longer paybacks may be riskier. 
B)  shorter paybacks may help reduce liquidity problems. 
C)  if the risk of obsolescence is high, the firm may want to recover the funds rapidly. 
D)  All of the above are correct. 
A)  projects with longer paybacks may be riskier. 
B)  shorter paybacks may help reduce liquidity problems. 
C)  if the risk of obsolescence is high, the firm may want to recover the funds rapidly. 
D)  All of the above are correct.

Question 16

A firm is evaluating a project that has a net present value of £0 when a discount rate of 8 per cent is used. A discount rate of 6 per cent will result in

Accepted Answer

A)  a negative net present value. 
B)  a positive net present value. 
C)  a net present value of £0. 
D)  The question cannot be answered based upon the information provided. 
A)  a negative net present value. 
B)  a positive net present value. 
C)  a net present value of £0. 
D)  The question cannot be answered based upon the information provided.

Question 17

If a project has a net present value of £0 when a discount rate of 10 per cent is used, what can be concluded about the rate of return of the project?

Accepted Answer

A)  The rate of return is greater than 10 per cent. 
B)  The rate of return is less than 10 per cent. 
C)  The rate of return equals 10 per cent. 
D)  The rate of return is 0. 
A)  The rate of return is greater than 10 per cent. 
B)  The rate of return is less than 10 per cent. 
C)  The rate of return equals 10 per cent. 
D)  The rate of return is 0.

The problem with the accounting rate of return is that it fails to consider the:

A firm is considering a project with annual cash flows of £120,000. The project would have an 8-year life, and the company uses a discount rate of 12 per cent. What is the maximum amount the company could invest in the project and the project still be acceptable?

Projects that, if accepted, preclude the acceptance of competing projects are

Which of the following capital investment models would be preferred when choosing among mutually exclusive alternatives?

Figure 13-5 -Refer to Figure 13-5. The present value of the annual net cash inflows from operations is

The present value of £2,000 to be received each year for three years and earning a 10 per cent return is

-Refer to Figure 13-2. The net present value of the project is

Firms may select projects with short paybacks because

A firm is evaluating a project that has a net present value of £0 when a discount rate of 8 per cent is used. A discount rate of 6 per cent will result in

If a project has a net present value of £0 when a discount rate of 10 per cent is used, what can be concluded about the rate of return of the project?

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 problem with the accounting rate of return is that it fails to consider the:

A firm is considering a project with annual cash flows of £120,000. The project would have an 8-year life, and the company uses a discount rate of 12 per cent. What is the maximum amount the company could invest in the project and the project still be acceptable?

Projects that, if accepted, preclude the acceptance of competing projects are

Which of the following capital investment models would be preferred when choosing among mutually exclusive alternatives?

Figure 13-5 -Refer to Figure 13-5. The present value of the annual net cash inflows from operations is

The present value of £2,000 to be received each year for three years and earning a 10 per cent return is

-Refer to Figure 13-2. The net present value of the project is

Firms may select projects with short paybacks because

A firm is evaluating a project that has a net present value of £0 when a discount rate of 8 per cent is used. A discount rate of 6 per cent will result in

If a project has a net present value of £0 when a discount rate of 10 per cent is used, what can be concluded about the rate of return of the project?

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