Question 1

The tax rate paid on additional amounts of pre- tax income

Accepted Answer

Marginal i

Question 2

Alice Maid Company will purchase a van for $40,000. It will have a depreciable life of 5 years and no terminal salvage value. Assume a tax rate of 40% and a required after- tax rate of return of 12%. The present value of the after- tax saving from depreciation in year 2, if an accelerated method is used (of twice the straight- line rate), is:

Accepted Answer

A)  $3,827 
B)  $6,378 
C)  $2,551 
D)  None of these answers is correct. 
A)  $3,827 
B)  $6,378 
C)  $2,551 
D)  None of these answers is correct.

Question 3

Buffy Company pays taxes of 15% on their first $20,000 of pre- tax income, and 30% on any taxable income in excess of $20,000. The average tax rate, if current pre- tax income is $50,000, is:

Accepted Answer

A)  24% 
B)  21% 
C)  15% 
D)  30% 
A)  24% 
B)  21% 
C)  15% 
D)  30%

Question 4

is a cash inflow.

Accepted Answer

A)  Revenue generated by a project 
B)  Purchase price of an asset 
C)  Interest expense 
D)  Depreciation expense 
A)  Revenue generated by a project 
B)  Purchase price of an asset 
C)  Interest expense 
D)  Depreciation expense

Question 5

At the current discount rate, the net present value of an 8- year project is zero. Assuming that the current discount rate and the annual cash flows are unchanged, identify which one of the following statements is true.

Accepted Answer

A)  The project is equally undesirable at 5 and 10 years. 
B)  The project will be desirable if the project's life is reduced to 5 years. 
C)  The project will be desirable if the project's life is increased to 10 years. 
D)  The project is equally desirable at 5 and 10 years. 
A)  The project is equally undesirable at 5 and 10 years. 
B)  The project will be desirable if the project's life is reduced to 5 years. 
C)  The project will be desirable if the project's life is increased to 10 years. 
D)  The project is equally desirable at 5 and 10 years.

Question 6

The marginal tax rate is:

Accepted Answer

A)  the rate paid on additional amounts of pre- tax income 
B)  the highest possible rate the company might be expected to pay 
C)  the lowest tax rate applicable to the company 
D)  the average rate for the company 
A)  the rate paid on additional amounts of pre- tax income 
B)  the highest possible rate the company might be expected to pay 
C)  the lowest tax rate applicable to the company 
D)  the average rate for the company

Question 7

Long- term planning for making and financing investments that affect financial results for more than the current year is called:

Accepted Answer

A)  capital budgeting decisions 
B)  strategic analysis 
C)  sensitivity analysis 
D)  operational budgeting 
A)  capital budgeting decisions 
B)  strategic analysis 
C)  sensitivity analysis 
D)  operational budgeting

Question 8

The number of years over which an asset is depreciated for tax purposes

Accepted Answer

The answer of The number of years over which an...

Question 9

A reduction in a cash outflow is not treated the same was as a cash inflow.

Accepted Answer

A) True 
 B)False

Question 10

An initial investment of $270,000 is expected to generate $120,000 in annual cost savings over the asset's expected 3- year life. Assume straight- line depreciation and ignore income taxes. The payback period is:

Accepted Answer

A)  2.40 years 
B)  3.00 years 
C)  0.75 years 
D)  2.25 years 
A)  2.40 years 
B)  3.00 years 
C)  0.75 years 
D)  2.25 years

Question 11

In capital budgeting decisions, risk is a measure of:

Accepted Answer

A)  the project's sensitivity to change 
B)  the project's desirability 
C)  the firm's credit worthiness 
D)  the likelihood that the project will succeed 
A)  the project's sensitivity to change 
B)  the project's desirability 
C)  the firm's credit worthiness 
D)  the likelihood that the project will succeed

Question 12

Identify which of the following statements regarding the payback model is false.

Accepted Answer

A)  The payback model measures how quickly investment dollars may be recouped. 
B)  A project with a shorter payback time is not necessarily preferable to one with a longer payback time. 
C)  The payback model measures profitability. 
D)  The payback model provides a rough estimate of risk. 
A)  The payback model measures how quickly investment dollars may be recouped. 
B)  A project with a shorter payback time is not necessarily preferable to one with a longer payback time. 
C)  The payback model measures profitability. 
D)  The payback model provides a rough estimate of risk.

Question 13

A follow- up evaluation of capital- budgeting decisions is called a post- audit.

Accepted Answer

A) True 
 B)False

Question 14

Assume that the desired rate of return is 10% and that interest is compounded annually. Identify how much must be invested today to have $10,000 in 5 years and 10 years, respectively.

Accepted Answer

A)  $1,000; $5,000 
B)  $5,000; $1,000 
C)  $3,791; $6,145 
D)  $6,209; $3,855 
A)  $1,000; $5,000 
B)  $5,000; $1,000 
C)  $3,791; $6,145 
D)  $6,209; $3,855

Question 15

A nondiscounted- cash flows, capital- budgeting model that dovetails most closely with conventional accounting models of calculating income and required investment

Accepted Answer

Accounting

Question 16

Generally, the hardest part of making capital- budgeting decisions is predicting the relevant cash flows.

Accepted Answer

A) True 
 B)False

Question 17

A positive NPV means that accepting the project will increase the value of the firm.

Accepted Answer

A) True 
 B)False

Question 18

and financing decisions are two key aspects of capital budgeting.

Accepted Answer

A)  Investing decisions 
B)  Discount decisions 
C)  Accounting decisions 
D)  Payback decisions 
A)  Investing decisions 
B)  Discount decisions 
C)  Accounting decisions 
D)  Payback decisions

Question 19

The minimum desired rate of return based on the firm's cost of capital

Accepted Answer

Discount rate (or re

Question 20

Below are two potential investment alternatives: $\begin{array}{lll}&X&Y\
\text { Initial capital investment } & \$ 180,000 & \$ 270,000 \
\text { Estimated useful life } & 3 \text { yrs. } & 3 \text { yrs. } \
\text { Estimated teminal salvage value } & -0- & -0- \
\text { Estimated annual savings in cash } & & \
\text { oper atingcosts } & \$ 75,000 & \$ 120,000 \
\text { Minimum desired rate of return } & 10 \% & 12 \%
\end{array}$ Assume straight- line depreciation in all computations, and ignore income taxes. The net present value in investment Y is:

Accepted Answer

A)  $120,000 
B)  $184,584 
C)  $18,216 
D)  $(492) 
A)  $120,000 
B)  $184,584 
C)  $18,216 
D)  $(492)

The tax rate paid on additional amounts of pre- tax income

Buffy Company pays taxes of 15% on their first $20,000 of pre- tax income, and 30% on any taxable income in excess of $20,000. The average tax rate, if current pre- tax income is $50,000, is:

is a cash inflow.

At the current discount rate, the net present value of an 8- year project is zero. Assuming that the current discount rate and the annual cash flows are unchanged, identify which one of the following statements is true.

The marginal tax rate is:

Long- term planning for making and financing investments that affect financial results for more than the current year is called:

The number of years over which an asset is depreciated for tax purposes

A reduction in a cash outflow is not treated the same was as a cash inflow.

An initial investment of $270,000 is expected to generate $120,000 in annual cost savings over the asset's expected 3- year life. Assume straight- line depreciation and ignore income taxes. The payback period is:

In capital budgeting decisions, risk is a measure of:

Identify which of the following statements regarding the payback model is false.

A follow- up evaluation of capital- budgeting decisions is called a post- audit.

Assume that the desired rate of return is 10% and that interest is compounded annually. Identify how much must be invested today to have $10,000 in 5 years and 10 years, respectively.

A nondiscounted- cash flows, capital- budgeting model that dovetails most closely with conventional accounting models of calculating income and required investment

Generally, the hardest part of making capital- budgeting decisions is predicting the relevant cash flows.

A positive NPV means that accepting the project will increase the value of the firm.

and financing decisions are two key aspects of capital budgeting.

The minimum desired rate of return based on the firm's cost of capital

Managerial Accounting and the Business Organization

Introduction to Cost Behavior and Cost Volume Relationships

Measurement of Cost Behavior

Cost Management Systems and Activity-Based Costing

Relevant Information and Decision-Making: Marketing Decisions

Relevant Information and Decision-Making: Product Decisions

The Master Budget

Flexible Budget and Variance Analysis

Management Control Systems and Responsibility Accounting

Management Control in Decentralized Organizations

Cost Allocation

Job-Costing

Process-Costing Systems

Overhead Application: Variable and Absorbtion Costing

Basic Accounting Concepts, Techniques, and Conventions

Understanding Corporate Annual Reports: Basic Financial Statements

Filters

Exam 11: Capital Budgeting

The tax rate paid on additional amounts of pre- tax income

Buffy Company pays taxes of 15% on their first $20,000 of pre- tax income, and 30% on any taxable income in excess of $20,000. The average tax rate, if current pre- tax income is $50,000, is:

is a cash inflow.

At the current discount rate, the net present value of an 8- year project is zero. Assuming that the current discount rate and the annual cash flows are unchanged, identify which one of the following statements is true.

The marginal tax rate is:

Long- term planning for making and financing investments that affect financial results for more than the current year is called:

The number of years over which an asset is depreciated for tax purposes

A reduction in a cash outflow is not treated the same was as a cash inflow.

An initial investment of $270,000 is expected to generate $120,000 in annual cost savings over the asset's expected 3- year life. Assume straight- line depreciation and ignore income taxes. The payback period is:

In capital budgeting decisions, risk is a measure of:

Identify which of the following statements regarding the payback model is false.

A follow- up evaluation of capital- budgeting decisions is called a post- audit.

Assume that the desired rate of return is 10% and that interest is compounded annually. Identify how much must be invested today to have $10,000 in 5 years and 10 years, respectively.

A nondiscounted- cash flows, capital- budgeting model that dovetails most closely with conventional accounting models of calculating income and required investment

Generally, the hardest part of making capital- budgeting decisions is predicting the relevant cash flows.

A positive NPV means that accepting the project will increase the value of the firm.

and financing decisions are two key aspects of capital budgeting.

The minimum desired rate of return based on the firm's cost of capital

Managerial Accounting and the Business Organization

Introduction to Cost Behavior and Cost Volume Relationships

Measurement of Cost Behavior

Cost Management Systems and Activity-Based Costing

Relevant Information and Decision-Making: Marketing Decisions

Relevant Information and Decision-Making: Product Decisions

The Master Budget

Flexible Budget and Variance Analysis

Management Control Systems and Responsibility Accounting

Management Control in Decentralized Organizations

Cost Allocation

Job-Costing

Process-Costing Systems

Overhead Application: Variable and Absorbtion Costing

Basic Accounting Concepts, Techniques, and Conventions

Understanding Corporate Annual Reports: Basic Financial Statements

Filters