Question 1

The first step in the capital budgeting evaluation process is to

Accepted Answer

A) request proposals for projects. 
B) screen proposals by a capital budgeting committee. 
C) determine which projects are worthy of funding. 
D) approve the capital budget. 
A) request proposals for projects. 
B) screen proposals by a capital budgeting committee. 
C) determine which projects are worthy of funding. 
D) approve the capital budget.

Question 2

The cash payback period is computed by dividing the cost of the capital investment by the

Accepted Answer

A) annual net income. 
B) net annual cash inflow. 
C) present value of the cash inflow. 
D) present value of the net income. 
A) annual net income. 
B) net annual cash inflow. 
C) present value of the cash inflow. 
D) present value of the net income.

Question 3

A project with a zero net present value indicates that it is

Accepted Answer

A) unacceptable. 
B) profitable. 
C) acceptable. 
D) going to have an acceptable cash payback period. 
A) unacceptable. 
B) profitable. 
C) acceptable. 
D) going to have an acceptable cash payback period.

Question 4

A company's cost of capital refers to the

Accepted Answer

A) rate the company must pay to obtain funds from creditors and stockholders. 
B) total cost of a capital project. 
C) cost of printing and registering common stock shares. 
D) rate of return earned on common stock. 
A) rate the company must pay to obtain funds from creditors and stockholders. 
B) total cost of a capital project. 
C) cost of printing and registering common stock shares. 
D) rate of return earned on common stock.

Question 5

The discount rate that will result in the highest net present value for a project is

Accepted Answer

A) any rate lower that the cost of capital. 
B) any rate higher than the cost of capital. 
C) the lowest rate used to evaluate the project. 
D) the highest rate used to evaluate the project. 
A) any rate lower that the cost of capital. 
B) any rate higher than the cost of capital. 
C) the lowest rate used to evaluate the project. 
D) the highest rate used to evaluate the project.

Question 6

Sensitivity analysis uses a number of outcome estimates to get a sense of the variability among potential returns.

Accepted Answer

A) True 
 B)False

Question 7

Using the profitability index the projects rank as

Accepted Answer

A) A C B. 
B) A B C. 
C) C A B. 
D) C B A. 
A) A C B. 
B) A B C. 
C) C A B. 
D) C B A.

Question 8

A post-audit is an evaluation of how well a project's actual performance matches the projections made when the project was proposed.

Accepted Answer

A) True 
 B)False

Question 9

Intangible benefits in capital budgeting would include all of the following except increased

Accepted Answer

A) product quality. 
B) employee loyalty. 
C) salvage value. 
D) product safety. 
A) product quality. 
B) employee loyalty. 
C) salvage value. 
D) product safety.

Question 10

Mini Inc.is contemplating a capital project costing $47019.The project will provide annual cost savings of $18000 for 3 years and have a salvage value of $3000.The company's required rate of return is 10%.The company uses straight-line depreciation. $\begin{array} { c c c } 
\underline{\text { Year } }& \begin{array} { c } 
\text { Present Value } \
\underline{\text { of } 1 \text { at } 10 \%}
\end{array} & \begin{array} { c } 
\text { PV of an Annuity } \
\underline{\text { of } 1 \text { at } 10 \%}
\end{array} \
 1  & .909 & .909 \
2 & .826 & 1.736 \
3 & .751 & 2.487
\end{array}$ This project is

Accepted Answer

A) unacceptable because it earns a rate less than 10%. 
B) acceptable because it has a positive NPV. 
C) unacceptable because it has a negative NPV. 
D) acceptable because it has a zero NPV. 
A) unacceptable because it earns a rate less than 10%. 
B) acceptable because it has a positive NPV. 
C) unacceptable because it has a negative NPV. 
D) acceptable because it has a zero NPV.

Question 11

If a payback period for a project is greater than its expected useful life the

Accepted Answer

A) project will always be profitable. 
B) entire initial investment will not be recovered. 
C) project would only be acceptable if the company's cost of capital was low. 
D) project's return will always exceed the company's cost of capital. 
A) project will always be profitable. 
B) entire initial investment will not be recovered. 
C) project would only be acceptable if the company's cost of capital was low. 
D) project's return will always exceed the company's cost of capital.

Question 12

By ignoring intangible benefits capital budgeting techniques might incorrectly eliminate projects that could be financially beneficial to the company.

Accepted Answer

A) True 
 B)False

Question 13

What is the approximate net present value of this investment?

Accepted Answer

A) $27600 
B) $3583 
C) $1772 
D) $5496 
A) $27600 
B) $3583 
C) $1772 
D) $5496

Question 14

The cash payback technique

Accepted Answer

A) considers cash flows over the life of a project. 
B) cannot be used with uneven cash flows. 
C) is superior to the net present value method. 
D) may be useful as an initial screening device. 
A) considers cash flows over the life of a project. 
B) cannot be used with uneven cash flows. 
C) is superior to the net present value method. 
D) may be useful as an initial screening device.

Question 15

Using the profitability index method the present value of cash inflows for Project Flower is $88000 and the present value of cash inflows of Project Plant is $48000.If Project Flower and Project Plant require initial investments of $90000 and $40000 respectively and have the same useful life the project that should be accepted is

Accepted Answer

A) Project Flower. 
B) Project Plant. 
C) Either project may be accepted. 
D) Neither project should be accepted. 
A) Project Flower. 
B) Project Plant. 
C) Either project may be accepted. 
D) Neither project should be accepted.

Question 16

The capital budget for the year is approved by a company's

Accepted Answer

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

Question 17

A project with a profitability index of 1.156 also has net cash flows with a present value of $69360.The project's internal rate of return was 10%.The initial investment was

Accepted Answer

A) $66000. 
B) $80180. 
C) $60000. 
D) $62424. 
A) $66000. 
B) $80180. 
C) $60000. 
D) $62424.

Question 18

The corporate capital budget authorization process consists of how many steps?

Accepted Answer

A) 4 
B) 3 
C) 2 
D) 1 
A) 4 
B) 3 
C) 2 
D) 1

Question 19

What is the approximate internal rate of return for this investment?

Accepted Answer

A) 9% 
B) 10% 
C) 11% 
D) 12% 
A) 9% 
B) 10% 
C) 11% 
D) 12%

Question 20

Using the net present value method a net present value of zero indicates that the project would not be acceptable.

Accepted Answer

A) True 
 B)False

The first step in the capital budgeting evaluation process is to

The cash payback period is computed by dividing the cost of the capital investment by the

A project with a zero net present value indicates that it is

A company's cost of capital refers to the

The discount rate that will result in the highest net present value for a project is

Sensitivity analysis uses a number of outcome estimates to get a sense of the variability among potential returns.

Using the profitability index the projects rank as

A post-audit is an evaluation of how well a project's actual performance matches the projections made when the project was proposed.

Intangible benefits in capital budgeting would include all of the following except increased

If a payback period for a project is greater than its expected useful life the

By ignoring intangible benefits capital budgeting techniques might incorrectly eliminate projects that could be financially beneficial to the company.

What is the approximate net present value of this investment?

The cash payback technique

The capital budget for the year is approved by a company's

A project with a profitability index of 1.156 also has net cash flows with a present value of $69360.The project's internal rate of return was 10%.The initial investment was

The corporate capital budget authorization process consists of how many steps?

What is the approximate internal rate of return for this investment?

Using the net present value method a net present value of zero indicates that the project would not be acceptable.

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 first step in the capital budgeting evaluation process is to

The cash payback period is computed by dividing the cost of the capital investment by the

A project with a zero net present value indicates that it is

A company's cost of capital refers to the

The discount rate that will result in the highest net present value for a project is

Sensitivity analysis uses a number of outcome estimates to get a sense of the variability among potential returns.

Using the profitability index the projects rank as

A post-audit is an evaluation of how well a project's actual performance matches the projections made when the project was proposed.

Intangible benefits in capital budgeting would include all of the following except increased

If a payback period for a project is greater than its expected useful life the

By ignoring intangible benefits capital budgeting techniques might incorrectly eliminate projects that could be financially beneficial to the company.

What is the approximate net present value of this investment?

The cash payback technique

The capital budget for the year is approved by a company's

A project with a profitability index of 1.156 also has net cash flows with a present value of $69360.The project's internal rate of return was 10%.The initial investment was

The corporate capital budget authorization process consists of how many steps?

What is the approximate internal rate of return for this investment?

Using the net present value method a net present value of zero indicates that the project would not be acceptable.

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