Question 1

Which of these factors is necessary to compute the payback period for an investment?

Accepted Answer

A)  Useful life 
B)  Net present value 
C)  Annual net cash inflow 
D)  Minimum desired rate of return 
A)  Useful life 
B)  Net present value 
C)  Annual net cash inflow 
D)  Minimum desired rate of return C

Question 2

Which of the following capital budgeting methods considers the time value of money?

Accepted Answer

A)  Internal rate of return method 
B)  Net present value method 
C)  Unadjusted rate of return 
D)  Both the internal rate of return method and the net present value method 
A)  Internal rate of return method 
B)  Net present value method 
C)  Unadjusted rate of return 
D)  Both the internal rate of return method and the net present value method D

Question 3

The internal rate of return method provides a rate of return that approximates:

Accepted Answer

A)  The accounting rate of return 
B)  The unadjusted rate of return 
C)  Both the accounting rate of return and the unadjusted rate of return 
D)  Neither the accounting rate of return nor the unadjusted rate of return 
A)  The accounting rate of return 
B)  The unadjusted rate of return 
C)  Both the accounting rate of return and the unadjusted rate of return 
D)  Neither the accounting rate of return nor the unadjusted rate of return D

Question 4

The process of determining which investment is best among acceptable alternatives is:

Accepted Answer

A)  The ranking function 
B)  The screening function 
C)  The selecting function 
D)  The rationing function 
A)  The ranking function 
B)  The screening function 
C)  The selecting function 
D)  The rationing function

Question 5

A company's hurdle rate is the:

Accepted Answer

A)  Unadjusted rate of return on a capital investment 
B)  True rate of return on a capital investment 
C)  Internal rate of return on a capital investment 
D)  Minimum rate of return that an investment must provide in order to be acceptable 
A)  Unadjusted rate of return on a capital investment 
B)  True rate of return on a capital investment 
C)  Internal rate of return on a capital investment 
D)  Minimum rate of return that an investment must provide in order to be acceptable

Question 6

Collins Company is considering the purchase of a new machine. The initial investment in the machine was $39,000 and the present value of net cash inflows is $45,500. The profitability index is:

Accepted Answer

A)  7.00 
B)  6.00 
C)  1.17 
D)  0.86 
A)  7.00 
B)  6.00 
C)  1.17 
D)  0.86

Question 7

When would a project be rejected under the net present value method?

Accepted Answer

A)  If its net present value is less than zero 
B)  If its net present value is equal to zero 
C)  If its net present value is greater than zero 
D)  All of these are true 
A)  If its net present value is less than zero 
B)  If its net present value is equal to zero 
C)  If its net present value is greater than zero 
D)  All of these are true

Question 8

List and describe the three aspects of capital investment decisions that are critical to long-run profitability.

Accepted Answer

The answer of List and describe the three aspects of...

Question 9

Which of the following are correct capital budgeting decision rules when using the profitability index (PI)?

Accepted Answer

A)  PI a > PIb, pick a, etc. 
B)  PI = 1, invest; PIa > PIb, pick a, etc. 
C)  PI b > PIa, pick a, etc. 
D)  PI > 1, invest; PIa > PIb, pick a, etc. 
A)  PI a > PIb, pick a, etc. 
B)  PI = 1, invest; PIa > PIb, pick a, etc. 
C)  PI b > PIa, pick a, etc. 
D)  PI > 1, invest; PIa > PIb, pick a, etc.

Question 10

Interpolation is usually associated with which of the following capital budgeting methods?

Accepted Answer

A)  The unadjusted rate of return method 
B)  The internal rate of return method 
C)  The accounting rate of return method 
D)  The net present value method 
A)  The unadjusted rate of return method 
B)  The internal rate of return method 
C)  The accounting rate of return method 
D)  The net present value method

Question 11

Frosty-O-Cereal Company is considering the purchase of a new piece of production machinery to replace old machinery. This replacement will reduce labor and maintenance costs. Data related to the purchase follows:   Assume that all cash flows occur at the end of the year and will last for a period of ten years. Frosty-O-Cereal's average income tax rate is 40%. Also assume that for tax purposes the new machine will be depreciated on a straight-line basis for 10 years. What is the net present value of this purchase (rounded to the nearest 10 dollars)?

Accepted Answer

A)  ($89,347) 
B)  ($15,537) 
C)  $4,593 
D)  $44,853 
A)  ($89,347) 
B)  ($15,537) 
C)  $4,593 
D)  $44,853

Question 12

Allin Company is considering two projects. Project W has an investment cost of $15,000 and a present value of net cash inflows of $21,000. Project T has an investment cost of $20,000 and a present value of net cash inflows of $29,000. Due to limited resources, Allin can invest in only one project. What should Allin do?

Accepted Answer

A)  Invest in Project W 
B)  Invest in Project T 
C)  Invest in either Project W or Project T because both have positive net present values 
D)  The answer cannot be determined 
A)  Invest in Project W 
B)  Invest in Project T 
C)  Invest in either Project W or Project T because both have positive net present values 
D)  The answer cannot be determined

Question 13

Which of the following items would NOT have an impact on income taxes related to a capital budgeting decision?

Accepted Answer

A)  Extra revenue generated by a new machine 
B)  Deductions for the cost of the new machine 
C)  Depreciation on a new machine 
D)  All of these impact income taxes 
A)  Extra revenue generated by a new machine 
B)  Deductions for the cost of the new machine 
C)  Depreciation on a new machine 
D)  All of these impact income taxes

Question 14

The formula for computing the payback period is:

Accepted Answer

A)  Investment cost divided by annual revenues from investment 
B)  Investment cost divided by annual net cash inflows 
C)  Net cash inflows divided by investment cost 
D)  Annual revenues from investment divided by investment cost 
A)  Investment cost divided by annual revenues from investment 
B)  Investment cost divided by annual net cash inflows 
C)  Net cash inflows divided by investment cost 
D)  Annual revenues from investment divided by investment cost

Question 15

Macoupin Company purchased an asset for $275,000. It is expected to provide an additional $66,000 of annual net cash inflows. The asset has a 10-year life and an expected salvage value of $22,000. The hurdle rate is 12%. The present value of an annuity factor of 12% for 10 years is 5.65, and the present value of $1 discounted for 10 years at 12% is 0.322. Given the data provided, calculate the minimum amount of annual cash inflows that would provide the 12% return.

Accepted Answer

@#IMG-DLM& Cash flow return in

Question 16

An asset is purchased for $120,000. It is expected to provide an additional $28,000 of annual net cash inflows. The asset has a 10-year life and an expected salvage value of $12,000. The hurdle rate is 10%. The present value of an annuity factor of 10% for 10 years is 6.1446, and the present value of $1 discounted for 10 years at 10% is 0.3855. The present value of annuity factors at 10% for 3, 4, 5, 6, 7, 8, and 9 years are 2.4869, 3.1699, 3.7908, 4.3553, 4.8684, 5.3349, and 5.7590, respectively. The minimum useful life that would provide a 10% return is between:

Accepted Answer

A)  3 and 4 years 
B)  5 and 6 years 
C)  7 and 8 years 
D)  9 and 10 years 
A)  3 and 4 years 
B)  5 and 6 years 
C)  7 and 8 years 
D)  9 and 10 years

Question 17

If the net present value of an investment is positive, this represents the:

Accepted Answer

A)  Net contribution margin of the investment 
B)  Net profit of the investment 
C)  Net tax benefit of the investment 
D)  Net value gain of the investment above the hurdle rate 
A)  Net contribution margin of the investment 
B)  Net profit of the investment 
C)  Net tax benefit of the investment 
D)  Net value gain of the investment above the hurdle rate

Question 18

When a company has an opportunity to invest in several projects but has limited resources, it should select those projects with the highest:

Accepted Answer

A)  Net present value 
B)  Net annual cash inflows 
C)  Profitability index 
D)  Annual cash inflows 
A)  Net present value 
B)  Net annual cash inflows 
C)  Profitability index 
D)  Annual cash inflows

Question 19

When using the internal rate of return method, a project will be rejected if:

Accepted Answer

A)  The internal rate of return is greater than the hurdle rate 
B)  The internal rate of return is equal to the hurdle rate 
C)  The internal rate of return is less than the hurdle rate 
D)  None of these are correct 
A)  The internal rate of return is greater than the hurdle rate 
B)  The internal rate of return is equal to the hurdle rate 
C)  The internal rate of return is less than the hurdle rate 
D)  None of these are correct

Question 20

Which of the following would be considered a discounted cash flow method?

Accepted Answer

A)  The payback period method 
B)  The unadjusted rate of return method 
C)  The net present value method 
D)  The capital budgeting method 
A)  The payback period method 
B)  The unadjusted rate of return method 
C)  The net present value method 
D)  The capital budgeting method

Which of these factors is necessary to compute the payback period for an investment?

Which of the following capital budgeting methods considers the time value of money?

The internal rate of return method provides a rate of return that approximates:

The process of determining which investment is best among acceptable alternatives is:

A company's hurdle rate is the:

Collins Company is considering the purchase of a new machine. The initial investment in the machine was $39,000 and the present value of net cash inflows is $45,500. The profitability index is:

When would a project be rejected under the net present value method?

List and describe the three aspects of capital investment decisions that are critical to long-run profitability.

Which of the following are correct capital budgeting decision rules when using the profitability index (PI)?

Interpolation is usually associated with which of the following capital budgeting methods?

Which of the following items would NOT have an impact on income taxes related to a capital budgeting decision?

The formula for computing the payback period is:

If the net present value of an investment is positive, this represents the:

When a company has an opportunity to invest in several projects but has limited resources, it should select those projects with the highest:

When using the internal rate of return method, a project will be rejected if:

Which of the following would be considered a discounted cash flow method?

Accounting Information: Users and Uses

Financial Statements: An Overview

The Accounting Cycle: The Mechanics of Accounting

Completing the Accounting Cycle

Internal Controls: Ensuring the Integrity of Financial Information

Receivables: Selling a Product or a Service

Inventory and the Cost of Sales

Completing the Operating Cycle

Investments: Property, Plant, and Equipment and Intangible Assets

Financing: Long-Term Liabilities

Financing: Equity

Investments: Debt and Equity Securities

Statement of Cash Flows

Analyzing Financial Statements

Management Accounting and Cost Concepts

Cost Flows and Business Organizations

Activity-Based Costing

Budgeting and Control

Controlling Cost and Profit

Inventory Management and Variable and Absorption Costing

Cost Behavior and Decisions Using C-V-P Analysis

Relevant Information and Decisions

New Measures of Performance

Filters

Exam 23: Capital Investment Decisions

Which of these factors is necessary to compute the payback period for an investment?

Which of the following capital budgeting methods considers the time value of money?

The internal rate of return method provides a rate of return that approximates:

The process of determining which investment is best among acceptable alternatives is:

A company's hurdle rate is the:

Collins Company is considering the purchase of a new machine. The initial investment in the machine was $39,000 and the present value of net cash inflows is $45,500. The profitability index is:

When would a project be rejected under the net present value method?

List and describe the three aspects of capital investment decisions that are critical to long-run profitability.

Which of the following are correct capital budgeting decision rules when using the profitability index (PI)?

Interpolation is usually associated with which of the following capital budgeting methods?

Which of the following items would NOT have an impact on income taxes related to a capital budgeting decision?

The formula for computing the payback period is:

If the net present value of an investment is positive, this represents the:

When a company has an opportunity to invest in several projects but has limited resources, it should select those projects with the highest:

When using the internal rate of return method, a project will be rejected if:

Which of the following would be considered a discounted cash flow method?

Accounting Information: Users and Uses

Financial Statements: An Overview

The Accounting Cycle: The Mechanics of Accounting

Completing the Accounting Cycle

Internal Controls: Ensuring the Integrity of Financial Information

Receivables: Selling a Product or a Service

Inventory and the Cost of Sales

Completing the Operating Cycle

Investments: Property, Plant, and Equipment and Intangible Assets

Financing: Long-Term Liabilities

Financing: Equity

Investments: Debt and Equity Securities

Statement of Cash Flows

Analyzing Financial Statements

Management Accounting and Cost Concepts

Cost Flows and Business Organizations

Activity-Based Costing

Budgeting and Control

Controlling Cost and Profit

Inventory Management and Variable and Absorption Costing

Cost Behavior and Decisions Using C-V-P Analysis

Relevant Information and Decisions

New Measures of Performance

Filters