Question 1

If a project has a positive 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 2

If a company's required rate of return is 9% and in using the profitability index method a project's index is greater than 1 this indicates that the project's rate of return is

Accepted Answer

A) equal to 9%. 
B) greater than 9%. 
C) less than 9%. 
D) unacceptable for investment purposes. 
A) equal to 9%. 
B) greater than 9%. 
C) less than 9%. 
D) unacceptable for investment purposes.

Question 3

The following information is available for a potential investment for Panda Company: $\begin{array} { l r } 
\text { Initial investment } & \$ 95,000 \
\text { Net annual cash inflow } & 20,000 \
\text { Net present value } & 36,224 \
\text { Salvage value } & 10,000 \
\text { Useful life } & 10 \text { yrs. }
\end{array}$ The potential investment's profitability index is

Accepted Answer

A) 4.75. 
B) 3.22. 
C) 2.62. 
D) 1.38. 
A) 4.75. 
B) 3.22. 
C) 2.62. 
D) 1.38.

Question 4

If a project has a profitability index of 1.20 then the project's internal rate of return is

Accepted Answer

A) equal to the discount rate. 
B) less than the discount rate. 
C) greater than the discount rate. 
D) equal to 20%. 
A) equal to the discount rate. 
B) less than the discount rate. 
C) greater than the discount rate. 
D) equal to 20%.

Question 5

A project with an initial investment of $70000 and a profitability index of 1.239 also has an internal rate of return of 12%.The present value of net cash flows is

Accepted Answer

A) $78400. 
B) $86730. 
C) $56497. 
D) $70000. 
A) $78400. 
B) $86730. 
C) $56497. 
D) $70000.

Question 6

Which of the following is not a capital budgeting decision?

Accepted Answer

A) Constructing new studios 
B) Replacing old equipment 
C) Scrapping obsolete inventory 
D) Remodeling an office building 
A) Constructing new studios 
B) Replacing old equipment 
C) Scrapping obsolete inventory 
D) Remodeling an office building

Question 7

All of the following statements about intangible benefits in capital budgeting are correct except that they

Accepted Answer

A) include increased quality and employee loyalty. 
B) are difficult to quantify. 
C) are often ignored in capital budgeting decisions. 
D) cannot be incorporated into the NPV calculation. 
A) include increased quality and employee loyalty. 
B) are difficult to quantify. 
C) are often ignored in capital budgeting decisions. 
D) cannot be incorporated into the NPV calculation.

Question 8

Capital budgeting is the process

Accepted Answer

A) used in sell or process further decisions. 
B) of determining how much capital stock to issue. 
C) of making capital expenditure decisions. 
D) of eliminating unprofitable product lines. 
A) used in sell or process further decisions. 
B) of determining how much capital stock to issue. 
C) of making capital expenditure decisions. 
D) of eliminating unprofitable product lines.

Question 9

To avoid accepting projects that actually should be rejected a company should ignore intangible benefits in calculating net present value.

Accepted Answer

A) True 
 B)False

Question 10

Capital budgeting decisions depend in part on all of the following except the

Accepted Answer

A) relationships among proposed projects. 
B) profitability of the company. 
C) company's basic decision making approach. 
D) risks associated with a particular project. 
A) relationships among proposed projects. 
B) profitability of the company. 
C) company's basic decision making approach. 
D) risks associated with a particular project.

Question 11

The net present value method can only be used in capital budgeting if the expected cash flows from a project are an equal amount each year.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is a disadvantage of the cash payback technique?

Accepted Answer

A) It is difficult to calculate 
B) It relies on the time value of money 
C) It can only be calculated when there are equal annual net cash flows 
D) It ignores the expected profitability of a project 
A) It is difficult to calculate 
B) It relies on the time value of money 
C) It can only be calculated when there are equal annual net cash flows 
D) It ignores the expected profitability of a project

Question 13

Brady Corp.is considering the purchase of a piece of equipment that costs $20000.Projected net annual cash flows over the project's life are: $\begin{array} { c c } 
\underline{\text { Year} } & \underline{\text { Net Annual Cash Flow }} \
1 & \$ 3,000 \
2 & 8,000 \
3 & 15,000 \
4 & 9,000
\end{array}$ The cash payback period is

Accepted Answer

A) 2.29 years. 
B) 2.60 years. 
C) 2.40 years. 
D) 2.31 years. 
A) 2.29 years. 
B) 2.60 years. 
C) 2.40 years. 
D) 2.31 years.

Question 14

A company has a minimum required rate of return of 10%.It is considering investing in a project that costs $50000 and is expected to generate cash inflows of $25000 at the end of each year for three years.The profitability index for this project is

Accepted Answer

A) .80. 
B) 1.00. 
C) 1.24. 
D) 1.27. 
A) .80. 
B) 1.00. 
C) 1.24. 
D) 1.27.

Question 15

Which of the following will increase the net present value of a project?

Accepted Answer

A) An increase in the initial investment 
B) A decrease in annual cash inflows 
C) An increase in the discount rate 
D) A decrease in the discount rate 
A) An increase in the initial investment 
B) A decrease in annual cash inflows 
C) An increase in the discount rate 
D) A decrease in the discount rate

Question 16

The capital budgeting method that takes into account both the size of the original investment and the discounted cash flows 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 17

The higher the risk element in a project the

Accepted Answer

A) more attractive the investment. 
B) higher the net present value. 
C) higher the cost of capital. 
D) higher the discount rate. 
A) more attractive the investment. 
B) higher the net present value. 
C) higher the cost of capital. 
D) higher the discount rate.

Question 18

The profitability index is calculated by dividing the total cash flows by the initial investment.

Accepted Answer

A) True 
 B)False

Question 19

All of the following are involved in the capital budgeting evaluation process except 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 20

Using the annual rate of return method a project is acceptable if its rate of return is greater than management's minimum rate of return.

Accepted Answer

A) True 
 B)False

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

If a company's required rate of return is 9% and in using the profitability index method a project's index is greater than 1 this indicates that the project's rate of return is

The following information is available for a potential investment for Panda Company: Initial investment \ 95,000 Net annual cash inflow 20,000 Net present value 36,224 Salvage value 10,000 Useful life 10 yrs. The potential investment's profitability index is

If a project has a profitability index of 1.20 then the project's internal rate of return is

A project with an initial investment of $70000 and a profitability index of 1.239 also has an internal rate of return of 12%.The present value of net cash flows is

Which of the following is not a capital budgeting decision?

All of the following statements about intangible benefits in capital budgeting are correct except that they

Capital budgeting is the process

To avoid accepting projects that actually should be rejected a company should ignore intangible benefits in calculating net present value.

Capital budgeting decisions depend in part on all of the following except the

The net present value method can only be used in capital budgeting if the expected cash flows from a project are an equal amount each year.

Which of the following is a disadvantage of the cash payback technique?

Brady Corp.is considering the purchase of a piece of equipment that costs $20000.Projected net annual cash flows over the project's life are: 1 \ 3,000 2 8,000 3 15,000 4 9,000 The cash payback period is

A company has a minimum required rate of return of 10%.It is considering investing in a project that costs $50000 and is expected to generate cash inflows of $25000 at the end of each year for three years.The profitability index for this project is

Which of the following will increase the net present value of a project?

The capital budgeting method that takes into account both the size of the original investment and the discounted cash flows is the

The higher the risk element in a project the

The profitability index is calculated by dividing the total cash flows by the initial investment.

All of the following are involved in the capital budgeting evaluation process except a company's

Using the annual rate of return method a project is acceptable if its rate of return is greater than management's minimum rate of return.

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

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

If a company's required rate of return is 9% and in using the profitability index method a project's index is greater than 1 this indicates that the project's rate of return is

The following information is available for a potential investment for Panda Company: Initial investment \ 95,000 Net annual cash inflow 20,000 Net present value 36,224 Salvage value 10,000 Useful life 10 yrs. The potential investment's profitability index is

If a project has a profitability index of 1.20 then the project's internal rate of return is

A project with an initial investment of $70000 and a profitability index of 1.239 also has an internal rate of return of 12%.The present value of net cash flows is

Which of the following is not a capital budgeting decision?

All of the following statements about intangible benefits in capital budgeting are correct except that they

Capital budgeting is the process

To avoid accepting projects that actually should be rejected a company should ignore intangible benefits in calculating net present value.

Capital budgeting decisions depend in part on all of the following except the

The net present value method can only be used in capital budgeting if the expected cash flows from a project are an equal amount each year.

Which of the following is a disadvantage of the cash payback technique?

Brady Corp.is considering the purchase of a piece of equipment that costs $20000.Projected net annual cash flows over the project's life are: 1 \ 3,000 2 8,000 3 15,000 4 9,000 The cash payback period is

A company has a minimum required rate of return of 10%.It is considering investing in a project that costs $50000 and is expected to generate cash inflows of $25000 at the end of each year for three years.The profitability index for this project is

Which of the following will increase the net present value of a project?

The capital budgeting method that takes into account both the size of the original investment and the discounted cash flows is the

The higher the risk element in a project the

The profitability index is calculated by dividing the total cash flows by the initial investment.

All of the following are involved in the capital budgeting evaluation process except a company's

Using the annual rate of return method a project is acceptable if its rate of return is greater than management's minimum rate of return.

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