Question 1

The cost of capital is a weighted average of the rates paid on borrowed funds as well as on funds provided by investors in the company's stock.

Accepted Answer

A) True 
 B)False  True

Question 2

A negative net present value indicates that the

Accepted Answer

A) project is acceptable. 
B) wrong discount rate was used. 
C) project's annual rate of return exceeds the discount rate. 
D) present value of the cash inflows was less than the present value of the cash out flows. 
A) project is acceptable. 
B) wrong discount rate was used. 
C) project's annual rate of return exceeds the discount rate. 
D) present value of the cash inflows was less than the present value of the cash out flows. D

Question 3

An advantage of the annual rate of return method is that it relies on accrual accounting numbers rather than actual cash flows.

Accepted Answer

A) True 
 B)False  False

Question 4

Which of the following does not consider a company's required rate of return?

Accepted Answer

A) Net present value 
B) Internal rate of return 
C) Annual rate of return 
D) Cash payback 
A) Net present value 
B) Internal rate of return 
C) Annual rate of return 
D) Cash payback

Question 5

The capital budgeting committee ultimately approves the capital expenditure budget for the year.

Accepted Answer

A) True 
 B)False

Question 6

Capital expenditure proposals are initially screened by the

Accepted Answer

A) board of directors. 
B) executive committee. 
C) capital budgeting committee. 
D) stockholders. 
A) board of directors. 
B) executive committee. 
C) capital budgeting committee. 
D) stockholders.

Question 7

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 8

The profitability index

Accepted Answer

A) does not take into account the discounted cash flows. 
B) is calculated by dividing total cash flows by the initial investment. 
C) allows comparison of the relative desirability of projects that require differing initial investments. 
D) will never be greater than 1. 
A) does not take into account the discounted cash flows. 
B) is calculated by dividing total cash flows by the initial investment. 
C) allows comparison of the relative desirability of projects that require differing initial investments. 
D) will never be greater than 1.

Question 9

calculate net present value ignoring intangible benefits and then if the NPV is negative estimate whether the intangible benefits are worth at least the amount of the negative NPV.

Accepted Answer

A) 1 
B) 2 
C) 3 
D) both 2 and 3 are correct. 
A) 1 
B) 2 
C) 3 
D) both 2 and 3 are correct.

Question 10

Jordan Company is considering the purchase of a machine with the following data: $\begin{array} { l r } 
\text { Initial cost } & \$ 150,000 \
\text { One-time training cost } & 12,000 \
\text { Annual maintenance costs } & 15,000 \
\text { Annual cost savings } & 75,000 \
\text { Salvage value } & 20,000
\end{array}$ The cash payback period is

Accepted Answer

A) 2.70 years. 
B) 2.50 years. 
C) 2.37 years. 
D) 2.17 years. 
A) 2.70 years. 
B) 2.50 years. 
C) 2.37 years. 
D) 2.17 years.

Question 11

The capital budgeting method that allows comparison of the relative desirability of projects that require differing initial investments is the

Accepted Answer

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

Question 12

If a company's required rate of return is 10% and in using the net present value method a project's net present value is zero this indicates that the

Accepted Answer

A) project's rate of return exceeds 10%. 
B) project's rate of return is less than the minimum rate required. 
C) project earns a rate of return of 10%. 
D) project earns a rate of return of 0%. 
A) project's rate of return exceeds 10%. 
B) project's rate of return is less than the minimum rate required. 
C) project earns a rate of return of 10%. 
D) project earns a rate of return of 0%.

Question 13

Bark Company is considering buying a machine for $240000 with an estimated life of ten years and no salvage value.The straight-line method of depreciation will be used.The machine is expected to generate net income of $6000 each year.The cash payback period on this investment is

Accepted Answer

A) 20 years. 
B) 10 years. 
C) 8 years. 
D) 4 years. 
A) 20 years. 
B) 10 years. 
C) 8 years. 
D) 4 years.

Question 14

Using the profitability index how many of the projects are acceptable?

Accepted Answer

A) 3 
B) 2 
C) 1 
D) 0 
A) 3 
B) 2 
C) 1 
D) 0

Question 15

If an asset costs $240000 and is expected to have a $40000 salvage value at the end of its ten-year life and generates annual net cash inflows of $40000 each year the cash payback period is

Accepted Answer

A) 7 years. 
B) 6 years. 
C) 5 years. 
D) 4 years. 
A) 7 years. 
B) 6 years. 
C) 5 years. 
D) 4 years.

Question 16

In evaluating high-tech projects

Accepted Answer

A) only tangible benefits should be considered. 
B) only intangible benefits should be considered. 
C) both tangible and intangible benefits should be considered. 
D) neither tangible nor intangible benefits should be considered. 
A) only tangible benefits should be considered. 
B) only intangible benefits should be considered. 
C) both tangible and intangible benefits should be considered. 
D) neither tangible nor intangible benefits should be considered.

Question 17

If a project's profitability index is greater than 1 then the

Accepted Answer

A) project should always be accepted. 
B) project's net present value is negative. 
C) project's internal rate of return is less than the discount rate. 
D) project should be accepted if funds are available. 
A) project should always be accepted. 
B) project's net present value is negative. 
C) project's internal rate of return is less than the discount rate. 
D) project should be accepted if funds are available.

Question 18

The internal rate of return method is like the NPV method a discounted cash flow technique.

Accepted Answer

A) True 
 B)False

Question 19

If a project has a zero net present value its profitability index will be

Accepted Answer

A) one. 
B) greater than one. 
C) less than one. 
D) undeterminable. 
A) one. 
B) greater than one. 
C) less than one. 
D) undeterminable.

Question 20

When the annual cash flows from an investment are unequal the appropriate table to use is the

Accepted Answer

A) future value of 1 table. 
B) future value of annuity table. 
C) present value of 1 table. 
D) present value of annuity table. 
A) future value of 1 table. 
B) future value of annuity table. 
C) present value of 1 table. 
D) present value of annuity table.

The cost of capital is a weighted average of the rates paid on borrowed funds as well as on funds provided by investors in the company's stock.

A negative net present value indicates that the

An advantage of the annual rate of return method is that it relies on accrual accounting numbers rather than actual cash flows.

Which of the following does not consider a company's required rate of return?

The capital budgeting committee ultimately approves the capital expenditure budget for the year.

Capital expenditure proposals are initially screened by the

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

The profitability index

calculate net present value ignoring intangible benefits and then if the NPV is negative estimate whether the intangible benefits are worth at least the amount of the negative NPV.

Jordan Company is considering the purchase of a machine with the following data: Initial cost \ 150,000 One-time training cost 12,000 Annual maintenance costs 15,000 Annual cost savings 75,000 Salvage value 20,000 The cash payback period is

The capital budgeting method that allows comparison of the relative desirability of projects that require differing initial investments is the

If a company's required rate of return is 10% and in using the net present value method a project's net present value is zero this indicates that the

Bark Company is considering buying a machine for $240000 with an estimated life of ten years and no salvage value.The straight-line method of depreciation will be used.The machine is expected to generate net income of $6000 each year.The cash payback period on this investment is

Using the profitability index how many of the projects are acceptable?

If an asset costs $240000 and is expected to have a $40000 salvage value at the end of its ten-year life and generates annual net cash inflows of $40000 each year the cash payback period is

In evaluating high-tech projects

If a project's profitability index is greater than 1 then the

The internal rate of return method is like the NPV method a discounted cash flow technique.

If a project has a zero net present value its profitability index will be

When the annual cash flows from an investment are unequal the appropriate table to use is the

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Accrual Accounting Concepts

Fraud, Internal Control, and Cash

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Liabilities and Stockholders Equity

Financial Analysis: the Big Picture

Managerial Accounting

Cost-Volume-Profit

Incremental Analysis

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Planning for Capital Investments

Activity Based Costing

Filters

Exam 17: Cost-Volume Profit Analysis: Additional Issues

The cost of capital is a weighted average of the rates paid on borrowed funds as well as on funds provided by investors in the company's stock.

A negative net present value indicates that the

An advantage of the annual rate of return method is that it relies on accrual accounting numbers rather than actual cash flows.

Which of the following does not consider a company's required rate of return?

The capital budgeting committee ultimately approves the capital expenditure budget for the year.

Capital expenditure proposals are initially screened by the

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

The profitability index

calculate net present value ignoring intangible benefits and then if the NPV is negative estimate whether the intangible benefits are worth at least the amount of the negative NPV.

Jordan Company is considering the purchase of a machine with the following data: Initial cost \ 150,000 One-time training cost 12,000 Annual maintenance costs 15,000 Annual cost savings 75,000 Salvage value 20,000 The cash payback period is

The capital budgeting method that allows comparison of the relative desirability of projects that require differing initial investments is the

If a company's required rate of return is 10% and in using the net present value method a project's net present value is zero this indicates that the

Bark Company is considering buying a machine for $240000 with an estimated life of ten years and no salvage value.The straight-line method of depreciation will be used.The machine is expected to generate net income of $6000 each year.The cash payback period on this investment is

Using the profitability index how many of the projects are acceptable?

If an asset costs $240000 and is expected to have a $40000 salvage value at the end of its ten-year life and generates annual net cash inflows of $40000 each year the cash payback period is

In evaluating high-tech projects

If a project's profitability index is greater than 1 then the

The internal rate of return method is like the NPV method a discounted cash flow technique.

If a project has a zero net present value its profitability index will be

When the annual cash flows from an investment are unequal the appropriate table to use is the

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Accrual Accounting Concepts

Fraud, Internal Control, and Cash

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Liabilities and Stockholders Equity

Financial Analysis: the Big Picture

Managerial Accounting

Cost-Volume-Profit

Incremental Analysis

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Planning for Capital Investments

Activity Based Costing

Filters