Question 1

Assuming an interest rate of 10%, the present value of $50,000 to be received 8 years from now would be closest to

Accepted Answer

A) $23,350. 
B) $21,200. 
C) $19,300. 
D) $107,200. 
A) $23,350. 
B) $21,200. 
C) $19,300. 
D) $107,200.

Question 2

Assuming an interest rate of 10%, the present value of $11,000 received at the end of each year for 6 years would be closest to

Accepted Answer

A) $6,204. 
B) $66,000. 
C) $47,905. 
D) $84,876. 
A) $6,204. 
B) $66,000. 
C) $47,905. 
D) $84,876.

Question 3

All else being equal, a company would choose to invest in a capital asset if which of the following is true?

Accepted Answer

A) If the payback period equals the amount invested 
B) If the expected accounting rate of return is less than the required rate of return 
C) If the expected accounting rate of return is greater than the required rate of return 
D) If the average amount invested is equal to the net cash inflows 
A) If the payback period equals the amount invested 
B) If the expected accounting rate of return is less than the required rate of return 
C) If the expected accounting rate of return is greater than the required rate of return 
D) If the average amount invested is equal to the net cash inflows

Question 4

Spinelli Company is deciding whether to automate one phase of its production process. The equipment has a six year life and will cost $450,000. The interest rate is 12%. Net cash inflows per year:
   a. What is the present value of the net inflow for year 1?
b. What is the present value of the net inflow for year 5?

Accepted Answer

a. $85,000 × .893 =

Question 5

Pitt Company is evaluating two possible investments in depreciable plant assets. The company uses the straight-line method of depreciation. The following information is available:   How long is the payback period for Investment B?

Accepted Answer

A) 3.63 years 
B) 4.00 years 
C) 2.40 years 
D) 10.67 years 
A) 3.63 years 
B) 4.00 years 
C) 2.40 years 
D) 10.67 years

Question 6

You won the lottery and have a number of choices as to how to take the money. Which choice yields a greater present value?

Accepted Answer

A) $12,000 a year at the end of each of the next 6 years using a 6% discount rate 
B) $53,500 (lump sum)now using a 6% discount rate 
C) $90,000 (lump sum)7 years from now using a 6% discount rate 
D) $92,000 (lump sum)7 years from now using an 8% discount rate 
A) $12,000 a year at the end of each of the next 6 years using a 6% discount rate 
B) $53,500 (lump sum)now using a 6% discount rate 
C) $90,000 (lump sum)7 years from now using a 6% discount rate 
D) $92,000 (lump sum)7 years from now using an 8% discount rate

Question 7

When you graduate from college, your mother plans to give you a gift of $50,000 to start you on your way. However, to determine what you learned in business school, your mother presents you with four options on how to receive the gift. Which of the four options presented by your mother will yield the greatest present value to you?

Accepted Answer

A) A lump sum of $50,000 today 
B) $25,000 per year for the next 2 years using a 3% discount rate 
C) A lump sum of $50,000 after grad school (2 years)assuming a 5% discount rate 
D) A lump sum of $50,000 after grad school (2 years)assuming a 3% discount rate 
A) A lump sum of $50,000 today 
B) $25,000 per year for the next 2 years using a 3% discount rate 
C) A lump sum of $50,000 after grad school (2 years)assuming a 5% discount rate 
D) A lump sum of $50,000 after grad school (2 years)assuming a 3% discount rate

Question 8

O'Mally Department Stores is considering two possible expansion plans. One proposal involves opening 5 stores in Indiana at the cost of $1,920,000. Under the other proposal, the company would focus on Kentucky and open 6 stores at a cost of $2,500,000. The following information is available:   The payback period for the Kentucky proposal is closest to

Accepted Answer

A) 4.5 years. 
B) 6.25 years. 
C) 5.00 years. 
D) 31.25 years. 
A) 4.5 years. 
B) 6.25 years. 
C) 5.00 years. 
D) 31.25 years.

Question 9

Which of the following is a characteristic of a capital asset?

Accepted Answer

A) The item will be used for a long period of time. 
B) The item involves a significant sum of money. 
C) None of these characteristics are correct. 
D) Both A and B are correct. 
A) The item will be used for a long period of time. 
B) The item involves a significant sum of money. 
C) None of these characteristics are correct. 
D) Both A and B are correct.

Question 10

The costs to develop a major website for a company would be considered to be a capital asset if those costs are significant and material (for example, the costs to develop the website exceed $100,000).

Accepted Answer

A) True 
 B)False

Question 11

(Present value tables are needed.)Mulheim Corporation is deciding whether to automate one phase of its production process. The equipment has a six-year life and will cost $410,000. Projected net cash inflows from the equipment are as follows:   Mulheim Corporation's hurdle rate is 12%. Assume the residual value is zero.
What is the net present value of the equipment?

Accepted Answer

A) $(18,275) 
B) $3,046 
C) $20,000 
D) $18,275 
A) $(18,275) 
B) $3,046 
C) $20,000 
D) $18,275

Question 12

The principal amount, the interest rate, and the number of periods are all factors needed to calculate the time value of money.

Accepted Answer

A) True 
 B)False

Question 13

(Present value tables are required.)Interior Products, Inc. is evaluating the purchase of a new machine to use in its manufacturing process. The new machine would cost $41,000 and have a useful life of 6 years. At the end of the machine's life, it would have a residual value of $2,500. Annual cost savings from the new machine would be $12,400 per year for each of the six years of its life. Interior Products, Inc. has a minimum required rate of return of 16% on all new projects. The net present value of the new machine would be closest to

Accepted Answer

A) $3,669. 
B) $5,719. 
C) $4,694. 
D) $46,719. 
A) $3,669. 
B) $5,719. 
C) $4,694. 
D) $46,719.

Question 14

The "rate of return that makes the NPV of a capital project equal to zero" is best described by which of the following terms?

Accepted Answer

A) Accounting rate of return 
B) Internal rate of return 
C) Discount rate 
D) Net present value 
A) Accounting rate of return 
B) Internal rate of return 
C) Discount rate 
D) Net present value

Question 15

The Toth Company bought a new specialty machine that cost $100,000 with a 4-year life with no residual value. The company plans to generate annual cash inflows of $30,000 each year for 4 years. Calculate the accounting rate of return.

Accepted Answer

5.00%
Calculations:
($100,000

Question 16

The net present value model differs from the IRR model in that it does NOT show the project's unique rate of return.

Accepted Answer

A) True 
 B)False

Question 17

The process of making capital investment decisions is referred to as capital budgeting.

Accepted Answer

A) True 
 B)False

Question 18

The three factors that affect the time value of money are principal, number of periods, and the interest rate.

Accepted Answer

A) True 
 B)False

Question 19

The net present value method assumes that the cash inflows from a project are immediately reinvested at the

Accepted Answer

A) internal rate of return. 
B) accounting rate of return. 
C) market rate of return. 
D) required rate of return. 
A) internal rate of return. 
B) accounting rate of return. 
C) market rate of return. 
D) required rate of return.

Question 20

Self-check-in machines at airports are an example of capital assets.

Accepted Answer

A) True 
 B)False

Assuming an interest rate of 10%, the present value of $50,000 to be received 8 years from now would be closest to

Assuming an interest rate of 10%, the present value of $11,000 received at the end of each year for 6 years would be closest to

All else being equal, a company would choose to invest in a capital asset if which of the following is true?

Pitt Company is evaluating two possible investments in depreciable plant assets. The company uses the straight-line method of depreciation. The following information is available: How long is the payback period for Investment B?

You won the lottery and have a number of choices as to how to take the money. Which choice yields a greater present value?

Which of the following is a characteristic of a capital asset?

The costs to develop a major website for a company would be considered to be a capital asset if those costs are significant and material (for example, the costs to develop the website exceed $100,000).

The principal amount, the interest rate, and the number of periods are all factors needed to calculate the time value of money.

The "rate of return that makes the NPV of a capital project equal to zero" is best described by which of the following terms?

The Toth Company bought a new specialty machine that cost $100,000 with a 4-year life with no residual value. The company plans to generate annual cash inflows of $30,000 each year for 4 years. Calculate the accounting rate of return.

The net present value model differs from the IRR model in that it does NOT show the project's unique rate of return.

The process of making capital investment decisions is referred to as capital budgeting.

The three factors that affect the time value of money are principal, number of periods, and the interest rate.

The net present value method assumes that the cash inflows from a project are immediately reinvested at the

Self-check-in machines at airports are an example of capital assets.

Introduction to Managerial Accounting

Building Blocks of Managerial Accounting

Job Costing

Activity-Based Costing, Lean Operations, and the Costs of Quality

Process Costing

Cost Behavior

Cost-Volume-Profit Analysis

Relevant Costs for Short-Term Decisions

The Master Budget

Performance Evaluation

Standard Costs and Variances

Statement of Cash Flows

Financial Statement Analysis

Sustainability

Filters

Exam 12: Capital Investment Decisions and the Time Value of Money

Assuming an interest rate of 10%, the present value of $50,000 to be received 8 years from now would be closest to

Assuming an interest rate of 10%, the present value of $11,000 received at the end of each year for 6 years would be closest to

All else being equal, a company would choose to invest in a capital asset if which of the following is true?

Pitt Company is evaluating two possible investments in depreciable plant assets. The company uses the straight-line method of depreciation. The following information is available: How long is the payback period for Investment B?

You won the lottery and have a number of choices as to how to take the money. Which choice yields a greater present value?

Which of the following is a characteristic of a capital asset?

The costs to develop a major website for a company would be considered to be a capital asset if those costs are significant and material (for example, the costs to develop the website exceed $100,000).

The principal amount, the interest rate, and the number of periods are all factors needed to calculate the time value of money.

The "rate of return that makes the NPV of a capital project equal to zero" is best described by which of the following terms?

The Toth Company bought a new specialty machine that cost $100,000 with a 4-year life with no residual value. The company plans to generate annual cash inflows of $30,000 each year for 4 years. Calculate the accounting rate of return.

The net present value model differs from the IRR model in that it does NOT show the project's unique rate of return.

The process of making capital investment decisions is referred to as capital budgeting.

The three factors that affect the time value of money are principal, number of periods, and the interest rate.

The net present value method assumes that the cash inflows from a project are immediately reinvested at the

Self-check-in machines at airports are an example of capital assets.

Introduction to Managerial Accounting

Building Blocks of Managerial Accounting

Job Costing

Activity-Based Costing, Lean Operations, and the Costs of Quality

Process Costing

Cost Behavior

Cost-Volume-Profit Analysis

Relevant Costs for Short-Term Decisions

The Master Budget

Performance Evaluation

Standard Costs and Variances

Statement of Cash Flows

Financial Statement Analysis

Sustainability

Filters