Question 1

When using the NPV method, time zero means the value today.

Accepted Answer

A) True 
 B)False

Question 2

Maryanne Company is contemplating three different proposals for the purchase of some equipment. The relevant data are as follows: $\begin{array}{llll}&\text { Proposal C }&\text { Proposal A }&\text { Proposal }\
\text { Cost }&\$180,000&\$300,000&\$800,000\
\text { Annual savings of cash operating }\
\text { expenses } & \$ 25,000 & \$ 50,000 & \$ 150,000 \
\text { Terminal salvage value } & -0- & -0- & -0- \
\text { Estimated useful lif e in years } & 10 & 10 & 10 \
\begin{array}{l}
\text { Minimum desiredrate of }
\end{array} & 12 \% & 12 \% & 12 \% \
\text { return } & & & \
\text { Method of depreciation } & \mathrm{S} / \mathrm{L} & \mathrm{S} / \mathrm{L} & \mathrm{S} / \mathrm{L}
\end{array}$ Required:
Using net present value analysis, select the best proposal. Ignore income taxes.

Accepted Answer

5.6502 is the present value factor for a

Question 3

Arranging the relevant cash flows by project is a step in the:

Accepted Answer

A)  total project approach 
B)  internal rate of return approach 
C)  accounting rate of return approach 
D)  payback method 
A)  total project approach 
B)  internal rate of return approach 
C)  accounting rate of return approach 
D)  payback method

Question 4

is (are) a factor which complicates the analysis in capital budgeting.

Accepted Answer

A)  Inflation 
B)  Income taxes 
C)  Mutually exclusive projects 
D)  All of these answers are correct. 
A)  Inflation 
B)  Income taxes 
C)  Mutually exclusive projects 
D)  All of these answers are correct.

Question 5

The cash outflow for the purchase of equipment is an example of an operating cash flow.

Accepted Answer

A) True 
 B)False

Question 6

The lower the minimum desired rate of return, the:

Accepted Answer

A)  lower the present value of each future cash outflow 
B)  lower the present value of each future cash inflow 
C)  higher the net present value of the project 
D)  higher the present value of each future cash outflow 
A)  lower the present value of each future cash outflow 
B)  lower the present value of each future cash inflow 
C)  higher the net present value of the project 
D)  higher the present value of each future cash outflow

Question 7

The annual cash operating inflows, after taxes, of a newly purchased asset are expected to be $60,000. The expected useful life is 5 years; the nominal rate includes an inflation factor of 5%. The annual cash operating inflow for 1 year is:

Accepted Answer

A)  $57,000 
B)  $63,000 
C)  $66,150 
D)  $60,000 
A)  $57,000 
B)  $63,000 
C)  $66,150 
D)  $60,000

Question 8

Bond Corporation is considering the purchase of an asset for $400,000. It is expected that the product manufactured by the equipment can be sold for $150,000 and there will be annual production costs, exclusive of depreciation, equal to $80,000. The asset will have a 10- year life, no terminal salvage value, and straight- line depreciation will be used for tax purposes. The tax rate applicable to the company is 30%. The total net annual after- tax effect on cash resulting from the investment is a:

Accepted Answer

A)  $12,000 inflow 
B)  $49,000 inflow 
C)  $61,000 inflow 
D)  $21,000 inflow 
A)  $12,000 inflow 
B)  $49,000 inflow 
C)  $61,000 inflow 
D)  $21,000 inflow

Question 9

In the net- present- value model, the perfect capital markets assumption means that:

Accepted Answer

A)  net cash inflows equal net cash outflows 
B)  a company can borrow exactly the amount of money it needs 
C)  all amounts can be borrowed at the minimum desired rate of return 
D)  each lender charges the same interest rate 
A)  net cash inflows equal net cash outflows 
B)  a company can borrow exactly the amount of money it needs 
C)  all amounts can be borrowed at the minimum desired rate of return 
D)  each lender charges the same interest rate

Question 10

When considering a capital- budgeting project, a manager should first determine the:

Accepted Answer

A)  accounting rate of return 
B)  payback period 
C)  risk of the investment 
D)  internal rate of return 
A)  accounting rate of return 
B)  payback period 
C)  risk of the investment 
D)  internal rate of return

Question 11

Depreciating an asset is a cash flow.

Accepted Answer

A) True 
 B)False

Question 12

The total project approach can be used to compare any number of projects.

Accepted Answer

A) True 
 B)False

Question 13

Tax avoidance is illegally reducing taxes by recording fictitious deductions or failing to report income.

Accepted Answer

A) True 
 B)False

Question 14

The NPV method computes the present value of all expected future cash flows using a maximum desired rate of return.

Accepted Answer

A) True 
 B)False

Question 15

Accelerated depreciation:

Accepted Answer

A)  charges a larger proportion of an asset's cost to the earlier years 
B)  charges a larger proportion of an asset's cost to the later years 
C)  increases an asset's recovery period 
D)  reduces an asset's estimated useful life 
A)  charges a larger proportion of an asset's cost to the earlier years 
B)  charges a larger proportion of an asset's cost to the later years 
C)  increases an asset's recovery period 
D)  reduces an asset's estimated useful life

Question 16

Projects that recoup their investment quickly may be less risky than those that require a longer wait.

Accepted Answer

A) True 
 B)False

Question 17

The decline in the general purchasing power of the monetary unit

Accepted Answer

The answer of The decline in the general purchasing power...

Question 18

The time it will take to recoup, in the form of cash inflows from operations, the initial dollars invested in a project

Accepted Answer

Payback ti

Question 19

Discounted- cash- flow models focus on a project's cash inflows and cash outflows without regard to the time value of money.

Accepted Answer

A) True 
 B)False

Question 20

Chaparral Company pays taxes of 25% on their first $30,000 of pre- tax income, and 35% on any taxable income in excess of $30,000. The marginal tax rate, if current pre- tax income is $45,000, is:

Accepted Answer

A)  30% 
B)  60% 
C)  25% 
D)  35% 
A)  30% 
B)  60% 
C)  25% 
D)  35%

When using the NPV method, time zero means the value today.

Arranging the relevant cash flows by project is a step in the:

is (are) a factor which complicates the analysis in capital budgeting.

The cash outflow for the purchase of equipment is an example of an operating cash flow.

The lower the minimum desired rate of return, the:

The annual cash operating inflows, after taxes, of a newly purchased asset are expected to be $60,000. The expected useful life is 5 years; the nominal rate includes an inflation factor of 5%. The annual cash operating inflow for 1 year is:

In the net- present- value model, the perfect capital markets assumption means that:

When considering a capital- budgeting project, a manager should first determine the:

Depreciating an asset is a cash flow.

The total project approach can be used to compare any number of projects.

Tax avoidance is illegally reducing taxes by recording fictitious deductions or failing to report income.

The NPV method computes the present value of all expected future cash flows using a maximum desired rate of return.

Accelerated depreciation:

Projects that recoup their investment quickly may be less risky than those that require a longer wait.

The decline in the general purchasing power of the monetary unit

The time it will take to recoup, in the form of cash inflows from operations, the initial dollars invested in a project

Discounted- cash- flow models focus on a project's cash inflows and cash outflows without regard to the time value of money.

Chaparral Company pays taxes of 25% on their first $30,000 of pre- tax income, and 35% on any taxable income in excess of $30,000. The marginal tax rate, if current pre- tax income is $45,000, is:

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

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Exam 11: Capital Budgeting

When using the NPV method, time zero means the value today.

Arranging the relevant cash flows by project is a step in the:

is (are) a factor which complicates the analysis in capital budgeting.

The cash outflow for the purchase of equipment is an example of an operating cash flow.

The lower the minimum desired rate of return, the:

The annual cash operating inflows, after taxes, of a newly purchased asset are expected to be $60,000. The expected useful life is 5 years; the nominal rate includes an inflation factor of 5%. The annual cash operating inflow for 1 year is:

In the net- present- value model, the perfect capital markets assumption means that:

When considering a capital- budgeting project, a manager should first determine the:

Depreciating an asset is a cash flow.

The total project approach can be used to compare any number of projects.

Tax avoidance is illegally reducing taxes by recording fictitious deductions or failing to report income.

The NPV method computes the present value of all expected future cash flows using a maximum desired rate of return.

Accelerated depreciation:

Projects that recoup their investment quickly may be less risky than those that require a longer wait.

The decline in the general purchasing power of the monetary unit

The time it will take to recoup, in the form of cash inflows from operations, the initial dollars invested in a project

Discounted- cash- flow models focus on a project's cash inflows and cash outflows without regard to the time value of money.

Chaparral Company pays taxes of 25% on their first $30,000 of pre- tax income, and 35% on any taxable income in excess of $30,000. The marginal tax rate, if current pre- tax income is $45,000, is:

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