Question 1

The payback method of making capital budgeting decisions gives full consideration to the time value of money.

Accepted Answer

A) True 
 B)False  False

Question 2

Which one of the following statements about the payback method of capital budgeting is correct?

Accepted Answer

A)  The payback method does not consider the time value of money. 
B)  The payback method considers cash flows after the payback has been reached. 
C)  The payback method uses discounted cash flow techniques. 
D)  The payback method will lead to the same decision as other methods of capital budgeting. 
A)  The payback method does not consider the time value of money. 
B)  The payback method considers cash flows after the payback has been reached. 
C)  The payback method uses discounted cash flow techniques. 
D)  The payback method will lead to the same decision as other methods of capital budgeting. A

Question 3

The Keego Company is planning a $200,000 equipment investment that has an estimated five-year life with no estimated salvage value.The company has projected the following annual cash flows for the investment.   Assuming that the cash inflows occur evenly over each year,the payback period for the investment is:

Accepted Answer

A)  0.75 years. 
B)  1.67 years. 
C)  2.50 years. 
D)  4.91 years. 
A)  0.75 years. 
B)  1.67 years. 
C)  2.50 years. 
D)  4.91 years. C

Question 4

An investment project that requires a present investment of $210,000 will have cash inflows of "R" dollars each year for the next five years.The project will terminate in five years.Consider the following statements (ignore income tax considerations): I)If "R" is less than $42,000,the payback period exceeds the life of the project.
II)If "R" is greater than $42,000,the payback period exceeds the life of the project.
III)If "R" equals $42,000,the payback period equals the life of the project.
Which statement(s)is (are)true?

Accepted Answer

A)  Only I and II. 
B)  Only I and III. 
C)  Only II and III. 
D)  I,II,and III. 
A)  Only I and II. 
B)  Only I and III. 
C)  Only II and III. 
D)  I,II,and III.

Question 5

Suppose an investment has cash inflows of R dollars at the end of each year for two years.The present value of these cash inflows using a 12% discount rate will be:

Accepted Answer

A)  greater than under a 10% discount rate. 
B)  less than under a 10% discount rate. 
C)  equal to that under a 10% discount rate. 
D)  sometimes greater than under a 10% discount rate and sometimes less;it depends on R. 
A)  greater than under a 10% discount rate. 
B)  less than under a 10% discount rate. 
C)  equal to that under a 10% discount rate. 
D)  sometimes greater than under a 10% discount rate and sometimes less;it depends on R.

Question 6

Benz Company is considering the purchase of a machine that costs $100,000 and has a useful life of 18 years with no salvage value.The company's required discount rate is 12%.If the machine's net present value is $5,850,then the annual cash inflows associated with the machine must be (round to the nearest whole dollar):

Accepted Answer

A)  $13,760. 
B)  $14,600. 
C)  $42,413. 
D)  it is impossible to determine from the data given. 
A)  $13,760. 
B)  $14,600. 
C)  $42,413. 
D)  it is impossible to determine from the data given.

Question 7

A new Xerox copier costing $400,000 has a life of 5 years with no salvage value.The facility will generate the following annual cash flows:

Accepted Answer

@#IMG-DLM& 
Compute the payback period.

Question 8

Perkins Company is considering several investment proposals,as shown below:   In what order do the proposals rank in terms of preference using the profitability index?

Accepted Answer

A)  D,B,C,A 
B)  B,D,C,A 
C)  B,D,A,C 
D)  A,C,B,D 
A)  D,B,C,A 
B)  B,D,C,A 
C)  B,D,A,C 
D)  A,C,B,D

Question 9

The net present value of all cash flows associated with this investment (rounded to the nearest dollar)is:

Accepted Answer

A)  $362,950. 
B)  $377,950. 
C)  $382,735. 
D)  $392,950. 
A)  $362,950. 
B)  $377,950. 
C)  $382,735. 
D)  $392,950.

Question 10

The total net present value of the proposed equipment acquisition is closest to:

Accepted Answer

A)  ($1,600). 
B)  $0. 
C)  $21,760. 
D)  $78,240. 
A)  ($1,600). 
B)  $0. 
C)  $21,760. 
D)  $78,240.

Question 11

Which of the above costs are not relevant to the comparison of the alternatives?

Accepted Answer

A)  Purchase cost new. 
B)  Overhaul costs needed year 4. 
C)  Annual cash operating costs. 
D)  Salvage value at the end of 8 years. 
A)  Purchase cost new. 
B)  Overhaul costs needed year 4. 
C)  Annual cash operating costs. 
D)  Salvage value at the end of 8 years.

Question 12

A major limitation of the payback method is that it cannot be used in situations where future budgeted cash flows are uneven.

Accepted Answer

A) True 
 B)False

Question 13

Screening decisions in capital budgeting involve determining whether a project meets some minimal pre-set standard of acceptance.

Accepted Answer

A) True 
 B)False

Question 14

Which of the statements below is correct about an increase in the discount rate?

Accepted Answer

A)  Will increase the present value of future cash flows. 
B)  Will have no effect on net present value. 
C)  Will reduce the present value of future cash flows. 
D)  Is one method of compensating for reduced risk. 
A)  Will increase the present value of future cash flows. 
B)  Will have no effect on net present value. 
C)  Will reduce the present value of future cash flows. 
D)  Is one method of compensating for reduced risk.

Question 15

A post audit of an investment project can provide feedback as to the quality of an entity's capital budgeting process.

Accepted Answer

A) True 
 B)False

Question 16

The simple rate of return on the investment is closest to:

Accepted Answer

A)  5%. 
B)  10%. 
C)  15%. 
D)  20%. 
A)  5%. 
B)  10%. 
C)  15%. 
D)  20%.

Question 17

The present value of all future operating cash inflows is closest to:

Accepted Answer

A)  $278,700. 
B)  $348,400. 
C)  $452,300. 
D)  $480,000. 
A)  $278,700. 
B)  $348,400. 
C)  $452,300. 
D)  $480,000.

Question 18

The following data pertain to an investment in equipment:   At the completion of the project,the working capital will be released for use elsewhere.What is the net present value of the project,using a discount rate of 10%?

Accepted Answer

A)  ($1,729). 
B)  $606. 
C)  $1,729. 
D)  $8,271. 
A)  ($1,729). 
B)  $606. 
C)  $1,729. 
D)  $8,271.

Question 19

Jimbob Co.has purchased new equipment at a cost of $200,000.The business wishes to consider in its capital budgeting analysis the impact of the tax shield resulting from this purchase.The capital cost allowance rate for this type of asset is 30% subject to the half year rule in the year of purchase.The applicable annual corporate tax rate is 40% and Jimbob Co.'s cost of capital is 10%.
Required:
What are the annual tax shield amounts to be used in net present value calculations for the first five years of the life of the equipment? (Round to even dollars)

Accepted Answer

The answer of Jimbob Co.has purchased new equipment at a...

Question 20

The net present value of project X is:

Accepted Answer

A)  ($11,708). 
B)  $2,915. 
C)  $5,283. 
D)  $6,317. 
A)  ($11,708). 
B)  $2,915. 
C)  $5,283. 
D)  $6,317.

The payback method of making capital budgeting decisions gives full consideration to the time value of money.

Which one of the following statements about the payback method of capital budgeting is correct?

Suppose an investment has cash inflows of R dollars at the end of each year for two years.The present value of these cash inflows using a 12% discount rate will be:

A new Xerox copier costing $400,000 has a life of 5 years with no salvage value.The facility will generate the following annual cash flows:

Perkins Company is considering several investment proposals,as shown below: In what order do the proposals rank in terms of preference using the profitability index?

The net present value of all cash flows associated with this investment (rounded to the nearest dollar)is:

The total net present value of the proposed equipment acquisition is closest to:

Which of the above costs are not relevant to the comparison of the alternatives?

A major limitation of the payback method is that it cannot be used in situations where future budgeted cash flows are uneven.

Screening decisions in capital budgeting involve determining whether a project meets some minimal pre-set standard of acceptance.

Which of the statements below is correct about an increase in the discount rate?

A post audit of an investment project can provide feedback as to the quality of an entity's capital budgeting process.

The simple rate of return on the investment is closest to:

The present value of all future operating cash inflows is closest to:

The following data pertain to an investment in equipment: At the completion of the project,the working capital will be released for use elsewhere.What is the net present value of the project,using a discount rate of 10%?

The net present value of project X is:

An Introduction to Managerial Accounting and Cost Concepts

Systems Design: Job-Order Costing

Systems Design: Activity-Based Costing

Systems Design: Process Costing

Cost Behavior: Analysis and Use

Cost-Volume-Profit Relationships

Profit Planning

Standard Costs

Flexible Budgets and Overhead Analysis

Relevant Costs for Decision Making

Capital Budgeting Decisions

How Well Am I Doing Statement of Cash Flows

How Well Am I Doing Financial Statement Analysis

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Exam 10: Decentralization

The payback method of making capital budgeting decisions gives full consideration to the time value of money.

Which one of the following statements about the payback method of capital budgeting is correct?

Suppose an investment has cash inflows of R dollars at the end of each year for two years.The present value of these cash inflows using a 12% discount rate will be:

A new Xerox copier costing $400,000 has a life of 5 years with no salvage value.The facility will generate the following annual cash flows:

Perkins Company is considering several investment proposals,as shown below: In what order do the proposals rank in terms of preference using the profitability index?

The net present value of all cash flows associated with this investment (rounded to the nearest dollar)is:

The total net present value of the proposed equipment acquisition is closest to:

Which of the above costs are not relevant to the comparison of the alternatives?

A major limitation of the payback method is that it cannot be used in situations where future budgeted cash flows are uneven.

Screening decisions in capital budgeting involve determining whether a project meets some minimal pre-set standard of acceptance.

Which of the statements below is correct about an increase in the discount rate?

A post audit of an investment project can provide feedback as to the quality of an entity's capital budgeting process.

The simple rate of return on the investment is closest to:

The present value of all future operating cash inflows is closest to:

The following data pertain to an investment in equipment: At the completion of the project,the working capital will be released for use elsewhere.What is the net present value of the project,using a discount rate of 10%?

The net present value of project X is:

An Introduction to Managerial Accounting and Cost Concepts

Systems Design: Job-Order Costing

Systems Design: Activity-Based Costing

Systems Design: Process Costing

Cost Behavior: Analysis and Use

Cost-Volume-Profit Relationships

Profit Planning

Standard Costs

Flexible Budgets and Overhead Analysis

Relevant Costs for Decision Making

Capital Budgeting Decisions

How Well Am I Doing Statement of Cash Flows

How Well Am I Doing Financial Statement Analysis

Filters