Question 1

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

Accepted Answer

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

Question 2

A company is considering the purchase of new equipment for $45,000.The projected annual net cash flows are $19,000.The machine has a useful life of 3 years and no salvage value.Management of the company requires a 12% return on investment.The present value of an annuity of $1 for various periods follows:   What is the net present value of this machine assuming all cash flows occur at year-end?

Accepted Answer

A) $(1,768) 
B) $3,000 
C) $634 
D) $19,000 
E) $45,634 
A) $(1,768) 
B) $3,000 
C) $634 
D) $19,000 
E) $45,634

Question 3

For projects financed from borrowed funds,the hurdle rate must exceed the interest rate paid on the borrowed funds.

Accepted Answer

A) True 
 B)False

Question 4

A minimum acceptable rate of return for an investment decision is called the:

Accepted Answer

A) Internal rate of return. 
B) Average rate of return. 
C) Hurdle rate of return. 
D) Maximum rate of return. 
E) Payback rate of return. 
A) Internal rate of return. 
B) Average rate of return. 
C) Hurdle rate of return. 
D) Maximum rate of return. 
E) Payback rate of return.

Question 5

The process of analyzing alternative long-term investments and deciding which assets to acquire or sell is known as:

Accepted Answer

A) Planning and control. 
B) Capital budgeting. 
C) Variance analysis. 
D) Master budgeting. 
E) Managerial accounting. 
A) Planning and control. 
B) Capital budgeting. 
C) Variance analysis. 
D) Master budgeting. 
E) Managerial accounting.

Question 6

Three widely used methods of comparing investment alternatives are payback period,net present value,and rate of return on average investment.

Accepted Answer

A) True 
 B)False

Question 7

What is capital budgeting? Why are capital budgeting decisions often difficult and risky?

Accepted Answer

Capital budgeting is the process of anal

Question 8

The net cash flow of a particular investment project:

Accepted Answer

A) Does not take income taxes into consideration. 
B) Equals the total of the cash inflows of the project. 
C) Equals the total of the cash outflows of the project. 
D) Does not include depreciation. 
E) Is equal to operating income each period. 
A) Does not take income taxes into consideration. 
B) Equals the total of the cash inflows of the project. 
C) Equals the total of the cash outflows of the project. 
D) Does not include depreciation. 
E) Is equal to operating income each period.

Question 9

If the internal rate of return (IRR)of an investment is lower than the hurdle rate,the project should be rejected.

Accepted Answer

A) True 
 B)False

Question 10

A company has a decision to make between two investment alternatives.The company requires a 10% return on investment.Predicted data is provided below:
   Required:
(a)Calculate the net present value for each investment.
(b)Which investment should this company select? Explain.

Accepted Answer

(a)
 @#IMG-DLM& (b)Select Inve

Question 11

The following present value factors are provided for use in this problem.   
-Cliff Co.wants to purchase a machine for $40,000,but needs to earn a return of 8%.The expected year-end net cash flows are $12,000 in each of the first three years,and $16,000 in the fourth year.What is the machine's net present value?

Accepted Answer

A) $(9,075). 
B) $2,685. 
C) $42,685. 
D) $(28,240). 
E) $52,000. 
A) $(9,075). 
B) $2,685. 
C) $42,685. 
D) $(28,240). 
E) $52,000.

Question 12

After-tax net income divided by the average amount invested in a project,is the:

Accepted Answer

A) Net present value rate. 
B) Payback rate. 
C) Accounting rate of return. 
D) Earnings from investment. 
E) Profit rate. 
A) Net present value rate. 
B) Payback rate. 
C) Accounting rate of return. 
D) Earnings from investment. 
E) Profit rate.

Question 13

Poe Company is considering the purchase of new equipment costing $80,000.The projected annual cash inflows are $30,200,to be received at the end of each year.The machine has a useful life of 4 years and no salvage value.Poe requires a 10% return on its investments.The present value of $1 and present value of an annuity of $1 for different periods is presented below.
 
-Compute the net present value of the machine.

Accepted Answer

A) $(15,731). 
B) $(4,896). 
C) $15,731. 
D) $4,896. 
E) $32,334. 
A) $(15,731). 
B) $(4,896). 
C) $15,731. 
D) $4,896. 
E) $32,334.

Question 14

Capital budgeting decisions are generally based on:

Accepted Answer

A) Tentative predictions of future outcomes. 
B) Perfect predictions of future outcomes. 
C) Results from past outcomes only. 
D) Results from current outcomes only. 
E) Speculation of interest rates and economic performance only. 
A) Tentative predictions of future outcomes. 
B) Perfect predictions of future outcomes. 
C) Results from past outcomes only. 
D) Results from current outcomes only. 
E) Speculation of interest rates and economic performance only.

Question 15

The minimum acceptable rate of return on an investment,often the company's cost of capital,is called the ________.

Accepted Answer

The answer of The minimum acceptable rate of return on...

Question 16

The payback method,unlike the net present value method,ignores cash flows after the point of cost recovery.

Accepted Answer

A) True 
 B)False

Question 17

If the internal rate of return (IRR)of an investment is lower than the hurdle rate,the project should be accepted.

Accepted Answer

A) True 
 B)False

Question 18

A disadvantage of using the payback period to compare investment alternatives is that:

Accepted Answer

A) It ignores cash flows beyond the payback period. 
B) It includes the time value of money. 
C) It cannot be used when cash flows are not uniform. 
D) It cannot be used if a company records depreciation. 
E) It cannot be used to compare investments with different initial investments. 
A) It ignores cash flows beyond the payback period. 
B) It includes the time value of money. 
C) It cannot be used when cash flows are not uniform. 
D) It cannot be used if a company records depreciation. 
E) It cannot be used to compare investments with different initial investments.

Question 19

A company produces two boat models,Flyer and Skimmer.Both products are being considered for major investment projects next year.Relevant data follow:
   Required:
Use the payback period to evaluate these two investment projects.

Accepted Answer

@#IMG-DLM& Payback period = 2 years + ($

Question 20

Which one of the following methods considers the time value of money in evaluating alternative capital expenditures?

Accepted Answer

A) Accounting rate of return. 
B) Net present value. 
C) Payback period. 
D) Cash flow method. 
E) Return on average investment. 
A) Accounting rate of return. 
B) Net present value. 
C) Payback period. 
D) Cash flow method. 
E) Return on average investment.

Exam 24: Capital Budgeting and Investment Analysis

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

For projects financed from borrowed funds,the hurdle rate must exceed the interest rate paid on the borrowed funds.

A minimum acceptable rate of return for an investment decision is called the:

The process of analyzing alternative long-term investments and deciding which assets to acquire or sell is known as:

Three widely used methods of comparing investment alternatives are payback period,net present value,and rate of return on average investment.

What is capital budgeting? Why are capital budgeting decisions often difficult and risky?

The net cash flow of a particular investment project:

If the internal rate of return (IRR)of an investment is lower than the hurdle rate,the project should be rejected.

A company has a decision to make between two investment alternatives.The company requires a 10% return on investment.Predicted data is provided below: Required: (a)Calculate the net present value for each investment. (b)Which investment should this company select? Explain.

After-tax net income divided by the average amount invested in a project,is the:

Capital budgeting decisions are generally based on:

The minimum acceptable rate of return on an investment,often the company's cost of capital,is called the ________.

The payback method,unlike the net present value method,ignores cash flows after the point of cost recovery.

If the internal rate of return (IRR)of an investment is lower than the hurdle rate,the project should be accepted.

A disadvantage of using the payback period to compare investment alternatives is that:

A company produces two boat models,Flyer and Skimmer.Both products are being considered for major investment projects next year.Relevant data follow: Required: Use the payback period to evaluate these two investment projects.

Which one of the following methods considers the time value of money in evaluating alternative capital expenditures?

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

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