Question 1

The net present value capital budgeting method considers all estimated cash flows for the project's expected life.

Accepted Answer

A) True 
 B)False

Question 2

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
-The net present value of Investment B is:

Accepted Answer

A) $780. 
B) $(15,780). 
C) $9,000. 
D) $39,797. 
E) $(5,918). 
A) $780. 
B) $(15,780). 
C) $9,000. 
D) $39,797. 
E) $(5,918).

Question 3

Which methods of evaluating a capital investment project use cash flows as a measurement basis?

Accepted Answer

A) Net present value,accounting rate of return,and internal rate of return. 
B) Internal rate of return,payback period,and accounting rate of return. 
C) Accounting rate of return,net present value,and payback period. 
D) Payback period,internal rate of return,and net present value. 
E) Net present value,payback period,accounting rate of return,and internal rate of return. 
A) Net present value,accounting rate of return,and internal rate of return. 
B) Internal rate of return,payback period,and accounting rate of return. 
C) Accounting rate of return,net present value,and payback period. 
D) Payback period,internal rate of return,and net present value. 
E) Net present value,payback period,accounting rate of return,and internal rate of return.

Question 4

A disadvantage of an investment with a short payback period is that it will produce revenue for only a short period of time.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

In using a capital budgeting method that takes the time value of money into consideration,management must consider a hurdle rate in making its decisions.What is a hurdle rate? What factors does management have to consider in selecting a hurdle rate?

Accepted Answer

A hurdle rate is a company's required,or

Question 7

Watson Corporation is considering buying a machine for $25,000.Its estimated useful life is 5 years,with no salvage value.Watson anticipates annual net income after taxes of $1,500 from the new machine.What is the accounting rate of return assuming that Watson uses straight-line depreciation and that income is earned uniformly throughout each year?

Accepted Answer

A) 6.0%. 
B) 8.0%. 
C) 8.5%. 
D) 10.0%. 
E) 12.0%. 
A) 6.0%. 
B) 8.0%. 
C) 8.5%. 
D) 10.0%. 
E) 12.0%.

Question 8

Match between columns
                        Premises: Capital budgeting
Hurdle rate
Net present value
Internal rate of return
Payback period
Accounting rate of return
Net cash flow

Accepted Answer

The Answer of Cash inflows minus cash outflows for the is...

Question 9

Using accelerated depreciation for tax reporting increases the net present value of an asset's cash flows because it produces larger net cash inflows in the early years of the asset's life.

Accepted Answer

A) True 
 B)False

Question 10

Restating future cash flows in terms of present values and then determining the payback period using these present values is known as:

Accepted Answer

A) Break-even time (BET) 
B) Internal rate of return method. 
C) Accounting rate of return method. 
D) Net present value method. 
E) Present value method. 
A) Break-even time (BET) 
B) Internal rate of return method. 
C) Accounting rate of return method. 
D) Net present value method. 
E) Present value method.

Question 11

A company wishes to buy new equipment for $9,000.The equipment is expected to generate an additional $2,800 in cash inflows for six years.All cash flows occur at year-end.A bank will make a $9,000 loan to the company at a 10% interest rate so that the company can purchase the equipment.Use the table below to determine break-even time for this equipment:

Accepted Answer

A) Break-even time is between two and three years. 
B) Break-even time is between three and four years. 
C) Break-even time is between four and five years. 
D) Break-even time is between five and six years. 
E) This project will never break-even. 
A) Break-even time is between two and three years. 
B) Break-even time is between three and four years. 
C) Break-even time is between four and five years. 
D) Break-even time is between five and six years. 
E) This project will never break-even.

Question 12

If two projects have the same risks,the same payback periods,and the same initial investments,they are equally attractive.

Accepted Answer

A) True 
 B)False

Question 13

Trevoline Company is deciding between two projects.Each project requires an initial investment of $350,000.The projected net cash flows for the two projects are listed below.The revenue is to be received at the end of each year.Trevoline requires a 10% return on its investments.The present value of an annuity of 1 and present value of an annuity factors for 10% are presented below.Use net present value to determine which project should be pursued and explain why.

Accepted Answer

@#IMG-DLM&
Both projects have a positive net prese

Question 14

A shorter payback period reduces the company's ability to respond to unanticipated changes and increases the risk of having to keep an unprofitable investment.

Accepted Answer

A) True 
 B)False

Question 15

An estimate of an asset's value to the company,calculated by discounting the future cash flows from the investment at the project's required rate of return and then subtracting the initial amount of the investment,is known as:

Accepted Answer

A) Annual net cash flows. 
B) Rate of return on investment. 
C) Net present value. 
D) Payback period. 
E) Unamortized carrying value. 
A) Annual net cash flows. 
B) Rate of return on investment. 
C) Net present value. 
D) Payback period. 
E) Unamortized carrying value.

Question 16

Capital budgeting decisions that relate to investments in technology are not as risky as other types of capital budgeting decisions.

Accepted Answer

A) True 
 B)False

Question 17

Nestor Company is considering the purchase of an asset for $100,000.It is expected to produce the following net cash flows.The cash flows occur evenly throughout each year.Compute the break-even time (BET)period for this investment.

Accepted Answer

A) 2.85 years. 
B) 2.57 years. 
C) 3.17 years. 
D) 2.98 years. 
E) 3.62 years. 
A) 2.85 years. 
B) 2.57 years. 
C) 3.17 years. 
D) 2.98 years. 
E) 3.62 years.

Question 18

Nebraska Co.is reviewing a capital investment of $100,000.This project's projected cash flows over a five-year period are estimated at $35,000 each year.
Required:
(a)Calculate the payback period.
(b)Calculate the break-even time.Assume a 12% hurdle rate and use the table below:
  
(c)Using the results in (a)and (b),make a recommendation for the project.

Accepted Answer

(a) Payback period = $100,000/$35,000 pe

Question 19

The calculation of the payback period for an investment when net cash flow is uneven is:

Accepted Answer

A) Determining when the cumulative total of net cash flows reaches zero. 
B) Determining when net income equals the cost of the investment. 
C) Determining which depreciation method will shorten the period. 
D) Determining the net present value for each cash flow. 
E) Determining the applicable hurdle rate. 
A) Determining when the cumulative total of net cash flows reaches zero. 
B) Determining when net income equals the cost of the investment. 
C) Determining which depreciation method will shorten the period. 
D) Determining the net present value for each cash flow. 
E) Determining the applicable hurdle rate.

Question 20

Butler Corporation is considering the purchase of new equipment costing $30,000.The projected annual after-tax net income from the equipment is $1,200,after deducting $10,000 for depreciation.The revenue is to be received at the end of each year.The machine has a useful life of 3 years and no salvage value.Butler 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) $24,018. 
B) $(3,100). 
C) $30,000. 
D) $26,900. 
E) $(29,520). 
A) $24,018. 
B) $(3,100). 
C) $30,000. 
D) $26,900. 
E) $(29,520).

The net present value capital budgeting method considers all estimated cash flows for the project's expected life.

Which methods of evaluating a capital investment project use cash flows as a measurement basis?

A disadvantage of an investment with a short payback period is that it will produce revenue for only a short period of time.

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

In using a capital budgeting method that takes the time value of money into consideration,management must consider a hurdle rate in making its decisions.What is a hurdle rate? What factors does management have to consider in selecting a hurdle rate?

Using accelerated depreciation for tax reporting increases the net present value of an asset's cash flows because it produces larger net cash inflows in the early years of the asset's life.

Restating future cash flows in terms of present values and then determining the payback period using these present values is known as:

If two projects have the same risks,the same payback periods,and the same initial investments,they are equally attractive.

A shorter payback period reduces the company's ability to respond to unanticipated changes and increases the risk of having to keep an unprofitable investment.

An estimate of an asset's value to the company,calculated by discounting the future cash flows from the investment at the project's required rate of return and then subtracting the initial amount of the investment,is known as:

Capital budgeting decisions that relate to investments in technology are not as risky as other types of capital budgeting decisions.

Nestor Company is considering the purchase of an asset for $100,000.It is expected to produce the following net cash flows.The cash flows occur evenly throughout each year.Compute the break-even time (BET)period for this investment.

The calculation of the payback period for an investment when net cash flow is uneven 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

Exam 24: Capital Budgeting and Investment Analysis

The net present value capital budgeting method considers all estimated cash flows for the project's expected life.

Which methods of evaluating a capital investment project use cash flows as a measurement basis?

A disadvantage of an investment with a short payback period is that it will produce revenue for only a short period of time.

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

In using a capital budgeting method that takes the time value of money into consideration,management must consider a hurdle rate in making its decisions.What is a hurdle rate? What factors does management have to consider in selecting a hurdle rate?

Using accelerated depreciation for tax reporting increases the net present value of an asset's cash flows because it produces larger net cash inflows in the early years of the asset's life.

Restating future cash flows in terms of present values and then determining the payback period using these present values is known as:

If two projects have the same risks,the same payback periods,and the same initial investments,they are equally attractive.

A shorter payback period reduces the company's ability to respond to unanticipated changes and increases the risk of having to keep an unprofitable investment.

An estimate of an asset's value to the company,calculated by discounting the future cash flows from the investment at the project's required rate of return and then subtracting the initial amount of the investment,is known as:

Capital budgeting decisions that relate to investments in technology are not as risky as other types of capital budgeting decisions.

Nestor Company is considering the purchase of an asset for $100,000.It is expected to produce the following net cash flows.The cash flows occur evenly throughout each year.Compute the break-even time (BET)period for this investment.

The calculation of the payback period for an investment when net cash flow is uneven 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