Question 1

In ranking choices with the break-even time (BET)method,the investment with the longest BET gets the highest rank.

Accepted Answer

A) True 
 B)False

Question 2

Match between columns
                        Premises: An estimate of an asset's value to the company; computed by discounting the future net cash flows using the company's required rate of return and then subtracting the initial amount invested.
An evaluation of a project's actual results versus its projected results.
Finance constraints that limit a company from accepting all positive net present value investments.
An average of the rate the company must pay to its lenders and investors.
A series of cash flows of equal dollar amount over equal time periods.
Used to compare projects when a company cannot fund all positive net present value projects calculated by dividing present value of net cash flows by the initial investment.

Accepted Answer

The Answer of Cost of capital and Net present value is...

Question 3

A company is planning to purchase a machine that will cost $24,000 with a six-year life and no salvage value.The company uses straight-line depreciation.The company expects to sell the machine's output of 3,000 units evenly throughout each year.A projected income statement for each year of the asset's life appears below.
 
-What is the accounting rate of return for this machine?

Accepted Answer

A) 33.3%. 
B) 16.7%. 
C) 50.0%. 
D) 8.3%. 
E) 4%. 
A) 33.3%. 
B) 16.7%. 
C) 50.0%. 
D) 8.3%. 
E) 4%.

Question 4

In ranking choices with the break-even time (BET)method,the investment with the longest BET gets the lowest rank.

Accepted Answer

A) True 
 B)False

Question 5

The internal rate of return method of evaluating capital investments cannot be used with uneven cash flows.

Accepted Answer

A) True 
 B)False

Question 6

The accounting rate of return (ARR)is computed by dividing a project's after-tax net income by the average annual investment.

Accepted Answer

A) True 
 B)False

Question 7

A project requires a $28,500 investment and is expected to generate end-of-period annual cash inflows of $12,000 for each of three years.Assuming a discount rate of 10%,what is the net present value of this investment? Selected present value factors for a single sum are shown in the table below:

Accepted Answer

A) $0.00 
B) $2,668.00 
C) ($7,461.00) 
D) $1,341.60 
E) $29,841.60 
A) $0.00 
B) $2,668.00 
C) ($7,461.00) 
D) $1,341.60 
E) $29,841.60

Question 8

Net cash flow can be calculated by adjusting the projected net income from a project for any non-cash revenues and expenses.

Accepted Answer

A) True 
 B)False

Question 9

A project requires a $28,000 investment and is expected to generate end-of-period annual cash inflows as follows:   Assuming a discount rate of 10%,what is the net present value of this investment? Selected present value factors for a single sum are shown in the table below.

Accepted Answer

A) $0.00 
B) $2,668.00 
C) ($7,461.00) 
D) $30,668.00 
E) ($4,966.68) 
A) $0.00 
B) $2,668.00 
C) ($7,461.00) 
D) $30,668.00 
E) ($4,966.68)

Question 10

Porter Co.is analyzing two potential investments.   
-The payback period in years for Project X is:

Accepted Answer

A) 2.00. 
B) 3.83. 
C) 3.50. 
D) 2.83. 
E) 4.00. 
A) 2.00. 
B) 3.83. 
C) 3.50. 
D) 2.83. 
E) 4.00.

Question 11

The break-even time (BET)method is a variation of the:

Accepted Answer

A) Payback method. 
B) Internal rate of return method. 
C) Accounting rate of return method. 
D) Net present value method. 
E) Present value method. 
A) Payback method. 
B) Internal rate of return method. 
C) Accounting rate of return method. 
D) Net present value method. 
E) Present value method.

Question 12

A capital budgeting method that considers how quickly a project recovers costs is known as ________.An enhancement to this method that also considers the time value of money is called ________.

Accepted Answer

payback period; brea

Question 13

________ is the process of analyzing alternative long-term investments and deciding which assets to acquire or sell.

Accepted Answer

The answer of ________ is the process of analyzing alternative...

Question 14

Vextra Corporation is considering the purchase of new equipment costing $35,000.The projected annual cash inflow is $11,000,to be received at the end of each year.The machine has a useful life of 4 years and no salvage value.Vextra requires a 12% return on its investments.The present value of an annuity of $1 for different periods follows:   
-What is the net present value of the machine?

Accepted Answer

A) $(33,410). 
B) $(3,100). 
C) $35,000. 
D) $3,410. 
E) $(1,590). 
A) $(33,410). 
B) $(3,100). 
C) $35,000. 
D) $3,410. 
E) $(1,590).

Question 15

The ________ is the rate that yields a net present value of zero for an investment.

Accepted Answer

internal r

Question 16

Alfarsi Industries uses the net present value method to make investment decisions and requires a 15% annual return on all investments.The company is considering two different investments.Each require an initial investment of $15,000 and will produce cash flows as follows:  
The present value factors of $1 each year at 15% are:
  
The present value of an annuity of $1 for 3 years at 15% is 2.2832
-Which investment should Alfarsi choose?

Accepted Answer

A) Only Investment A is acceptable. 
B) Only Investment B is acceptable. 
C) Both investments are acceptable,but A should be selected because it has the greater net present value. 
D) Both investments are acceptable,but B should be selected because it has the greater net present value. 
E) Neither machine is acceptable. 
A) Only Investment A is acceptable. 
B) Only Investment B is acceptable. 
C) Both investments are acceptable,but A should be selected because it has the greater net present value. 
D) Both investments are acceptable,but B should be selected because it has the greater net present value. 
E) Neither machine is acceptable.

Question 17

Identify at least three reasons for managers to favor the internal rate of return (IRR)over other capital budgeting approaches.

Accepted Answer

(1)IRR considers the time valu

Question 18

Briefly describe both the payback period method and the net present value method of comparing investment alternatives.

Accepted Answer

The payback period method evaluates alte

Question 19

The following relates to a proposed equipment purchase:  
-The annual average investment amount used to calculate the accounting rate of return is:

Accepted Answer

A) $72,000 
B) $70,000 
C) $37,000 
D) $74,000 
E) $48,950 
A) $72,000 
B) $70,000 
C) $37,000 
D) $74,000 
E) $48,950

Question 20

A company is considering the purchase of a new machine for $48,000.Management predicts that the machine can produce sales of $16,000 each year for the next 10 years.Expenses are expected to include direct materials,direct labor,and factory overhead totaling $12,000 per year including depreciation of $3,000 per year.Income tax expense is $1,600 per year based on a tax rate of 40%.What is the payback period for the new machine?

Accepted Answer

A) 20.0 years. 
B) 6.0 years. 
C) 7.5 years. 
D) 12.0 years. 
E) 8.9 years. 
A) 20.0 years. 
B) 6.0 years. 
C) 7.5 years. 
D) 12.0 years. 
E) 8.9 years.

Exam 24: Capital Budgeting and Investment Analysis

In ranking choices with the break-even time (BET)method,the investment with the longest BET gets the highest rank.

In ranking choices with the break-even time (BET)method,the investment with the longest BET gets the lowest rank.

The internal rate of return method of evaluating capital investments cannot be used with uneven cash flows.

The accounting rate of return (ARR)is computed by dividing a project's after-tax net income by the average annual investment.

A project requires a $28,500 investment and is expected to generate end-of-period annual cash inflows of $12,000 for each of three years.Assuming a discount rate of 10%,what is the net present value of this investment? Selected present value factors for a single sum are shown in the table below:

Net cash flow can be calculated by adjusting the projected net income from a project for any non-cash revenues and expenses.

A project requires a $28,000 investment and is expected to generate end-of-period annual cash inflows as follows: Assuming a discount rate of 10%,what is the net present value of this investment? Selected present value factors for a single sum are shown in the table below.

Porter Co.is analyzing two potential investments. -The payback period in years for Project X is:

The break-even time (BET)method is a variation of the:

A capital budgeting method that considers how quickly a project recovers costs is known as ________.An enhancement to this method that also considers the time value of money is called ________.

________ is the process of analyzing alternative long-term investments and deciding which assets to acquire or sell.

The ________ is the rate that yields a net present value of zero for an investment.

Identify at least three reasons for managers to favor the internal rate of return (IRR)over other capital budgeting approaches.

Briefly describe both the payback period method and the net present value method of comparing investment alternatives.

The following relates to a proposed equipment purchase: -The annual average investment amount used to calculate the accounting rate of return is:

Accounting in Business

Accounting for Business Transactions

Adjusting Accounts for Financial Statements

Accounting for Merchandising Operations

Inventories and Cost of Sales

Cash,fraud,and Internal Controls

Accounting for Receivables

Accounting for Long-Term Assets

Accounting for Current Liabilities

Accounting for Long-Term Liabilities

Corporate Reporting and Analysis

Reporting Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing and Analysis

Process Costing and Analysis

Activity-Based Costing and Analysis

Cost Behavior and Cost-Volume-Profit Analysis

Variable Costing and Analysis

Master Budgets and Performance Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Relevant Costing for Managerial Decisions

Time Value of Money

Investments

Lean Principles and Accounting

Filters

A capital budgeting method that considers how quickly a project recovers costs is known as .An enhancement to this method that also considers the time value of money is called .