Question 1

The internal-rate-of-return method assumes that project funds are reinvested at the:

Accepted Answer

A) hurdle rate. 
B) rate of return earned on the project. 
C) cost of debt capital. 
D) cost of equity capital. 
E) rate of earnings growth (REG). 
A) hurdle rate. 
B) rate of return earned on the project. 
C) cost of debt capital. 
D) cost of equity capital. 
E) rate of earnings growth (REG).

Question 2

Which of the following project evaluation methods focuses on accounting income rather than cash flows?

Accepted Answer

A) Net present value. 
B) Accounting rate of return. 
C) Internal rate of return. 
D) Payback perioD. 
E) None of thesE. 
A) Net present value. 
B) Accounting rate of return. 
C) Internal rate of return. 
D) Payback perioD. 
E) None of thesE.

Question 3

Wornell Industries is currently purchasing part no.456 from an outside supplier for $90 per unit.Because of supplier reliability problems,the company is considering producing the part internally in a currently idle manufacturing plant.Annual volume over the next five years is expected to total 400,000 units at variable manufacturing costs of $88 per unit.
Wornell must acquire $200,000 of new equipment if it reopens the plant.The equipment has a five-year service life,a $20,000 salvage value,and will be depreciated by the straight-line method.Normal equipment maintenance is expected to total $12,000 in year 4,and the equipment will be sold at the end of its life for $20,000,which represents $20,000 gain.
Required:
Rounding to the nearest dollar,use the net-present-value method (total-cost approach)and a 12% after-tax hurdle rate to determine whether Wornell should make or buy part no.456.The company is subject to a 30% income tax rate.
Wornell is better off to make part no.456.

Accepted Answer

@#IMG-DLM& 
Calculation of Depreciation -:
Year 1:

Question 4

A company that uses accelerated depreciation:

Accepted Answer

A) would write off a larger portion of an asset's cost sooner than under the straight-line method. 
B) would find that depreciation speeds up,with a small portion taken in early years and larger amounts taken in later years. 
C) would find that more tax benefits occur earlier than under the straight-line method. 
D) would find itself out of compliance with generally accepted accounting principles (GAAP). 
E) would find that choices "A" and "C" are truE. 
A) would write off a larger portion of an asset's cost sooner than under the straight-line method. 
B) would find that depreciation speeds up,with a small portion taken in early years and larger amounts taken in later years. 
C) would find that more tax benefits occur earlier than under the straight-line method. 
D) would find itself out of compliance with generally accepted accounting principles (GAAP). 
E) would find that choices "A" and "C" are truE.

Question 5

A cash flow measured in real dollars:

Accepted Answer

A) is the actual cash flow that we experience. 
B) is the actual cash flow adjusted for a change in the dollar's purchasing power. 
C) reflects the time value of money. 
D) equals the cash flow measured in nominal dollars. 
E) coincides with the amount of contemplated new investment. 
A) is the actual cash flow that we experience. 
B) is the actual cash flow adjusted for a change in the dollar's purchasing power. 
C) reflects the time value of money. 
D) equals the cash flow measured in nominal dollars. 
E) coincides with the amount of contemplated new investment.

Question 6

Which of the following choices correctly states the rules for project acceptance under the net-present-value method and the internal-rate-of-return method?

Accepted Answer

A) Choice A 
B) Choice B 
C) Choice C 
D) Choice D 
E) Choice E 
A) Choice A 
B) Choice B 
C) Choice C 
D) Choice D 
E) Choice E

Question 7

Bath Works Company has $70,000 of depreciation expense and is subject to a 30% income tax rate.On an after-tax basis,depreciation results in a:

Accepted Answer

A) $21,000 inflow. 
B) $21,000 outflow. 
C) $49,000 inflow. 
D) $49,000 outflow. 
E) neither an inflow nor an outflow because depreciation is a noncash expensE. 
A) $21,000 inflow. 
B) $21,000 outflow. 
C) $49,000 inflow. 
D) $49,000 outflow. 
E) neither an inflow nor an outflow because depreciation is a noncash expensE.

Question 8

Capital budgeting tends to focus primarily on:

Accepted Answer

A) revenues. 
B) costs. 
C) cost centers. 
D) programs and projects. 
E) allocation tools. 
A) revenues. 
B) costs. 
C) cost centers. 
D) programs and projects. 
E) allocation tools.

Question 9

Raymon Company received $7,000 cash from the sale of a machine that had an $11,000 book value.If the company is subject to a 30% income tax rate,the net cash flow to use in a discounted-cash-flow analysis would be:

Accepted Answer

A) $2,100. 
B) $4,900. 
C) $5,800. 
D) $7,000. 
E) $8,200. 
A) $2,100. 
B) $4,900. 
C) $5,800. 
D) $7,000. 
E) $8,200.

Question 10

A machine is expected to produce increases in cash operating costs of $200,000 for the next six years.If the company has a 14% after-tax hurdle rate and is subject to a 30% income tax rate,the correct discounted net cash flow would be:

Accepted Answer

A) $(233,340). 
B) $(544,460). 
C) $(777,800). 
D) $(1,011,140). 
E) some other amount. 
A) $(233,340). 
B) $(544,460). 
C) $(777,800). 
D) $(1,011,140). 
E) some other amount.

Question 11

A company's hurdle rate is generally influenced by whether management uses the net-present-value method or the internal-rate-of-return method.

Accepted Answer

A) True 
 B)False

Question 12

If income taxes are ignored,which of the following choices correctly notes how a project's depreciation is treated under the net-present-value method and the internal-rate-of-return method?

Accepted Answer

A) Choice A 
B) Choice B 
C) Choice C 
D) Choice D 
E) Choice E 
A) Choice A 
B) Choice B 
C) Choice C 
D) Choice D 
E) Choice E

Question 13

Assume that a capital project is being analyzed by a discounted-cash-flow approach,and an employee first assumes no income taxes and then later assumes a 30% income tax rate.How would depreciation expense be incorporated in the analysis?

Accepted Answer

A) Choice A 
B) Choice B 
C) Choice C 
D) Choice D 
E) Choice E 
A) Choice A 
B) Choice B 
C) Choice C 
D) Choice D 
E) Choice E

Question 14

The internal rate of return:

Accepted Answer

A) ignores the time value of money. 
B) equates a project's cash inflows with its cash outflows. 
C) equates a project's cash outflows with its expenses. 
D) equates the present value of a project's cash inflows with the present value of the cash outflows. 
E) equates the present value of a project's cash flows with the future value of the project's cash flows. 
A) ignores the time value of money. 
B) equates a project's cash inflows with its cash outflows. 
C) equates a project's cash outflows with its expenses. 
D) equates the present value of a project's cash inflows with the present value of the cash outflows. 
E) equates the present value of a project's cash flows with the future value of the project's cash flows.

Question 15

st.Augustine can acquire a $700,000 machine now that will benefit the firm over the next 5 years.A newly hired staff assistant correctly computed the net present value to be $134,020 by using a 10% hurdle rate.On the basis of this information,the machine was expected to produce annual cash operating savings of approximately:

Accepted Answer

A) $166,804. 
B) $220,000. 
C) $268,605. 
D) $834,020. 
E) some other amount. 
A) $166,804. 
B) $220,000. 
C) $268,605. 
D) $834,020. 
E) some other amount.

Question 16

Burkette Company can acquire a $900,000 machine now that will benefit the firm over the next 6 years.Annual savings in cash operating costs are expected to total $190,000.If the hurdle rate is 8%,the investment's net present value is:

Accepted Answer

A) $(181,800). 
B) $(21,630). 
C) $44,970. 
D) $184,920. 
E) some other amount. 
A) $(181,800). 
B) $(21,630). 
C) $44,970. 
D) $184,920. 
E) some other amount.

Question 17

In eight years,Lai Sing Company plans to receive $11,000 cash from the sale of a machine that has a $16,000 book value.If the firm is subject to a 30% income tax rate and has a 12% after-tax hurdle rate,the correct discounted net cash flow would be:

Accepted Answer

A) $606. 
B) $1,414. 
C) $3,838. 
D) $5,050. 
E) some other amount. 
A) $606. 
B) $1,414. 
C) $3,838. 
D) $5,050. 
E) some other amount.

Question 18

Porschia is considering the acquisition of new machinery that will produce uniform benefits over the next eight years.The following information is available:
Annual savings in cash operating costs: $350,000
Annual depreciation expense: $250,000
If the company is subject to a 30% tax rate,what denominator should be used to compute the machinery's payback period?

Accepted Answer

A) $70,000. 
B) $170,000. 
C) $245,000. 
D) $320,000. 
E) Some other amount. 
A) $70,000. 
B) $170,000. 
C) $245,000. 
D) $320,000. 
E) Some other amount.

Question 19

Which of the following tools is sometimes used to rank investment proposals?

Accepted Answer

A) Profitability index. 
B) Annuity index. 
C) Project assessment guide (PAG). 
D) Investment opportunity index. 
E) Capital ranking index. 
A) Profitability index. 
B) Annuity index. 
C) Project assessment guide (PAG). 
D) Investment opportunity index. 
E) Capital ranking index.

Question 20

A machine is expected to produce annual savings in cash operating costs of $400,000 for the next six years.If the company has a 10% after-tax hurdle rate and is subject to a 30% income tax rate,the correct discounted net cash flow would be:

Accepted Answer

A) $522,600. 
B) $947,520. 
C) $1,219,400. 
D) $1,742,000. 
E) some other amount. 
A) $522,600. 
B) $947,520. 
C) $1,219,400. 
D) $1,742,000. 
E) some other amount.

The internal-rate-of-return method assumes that project funds are reinvested at the:

Which of the following project evaluation methods focuses on accounting income rather than cash flows?

A company that uses accelerated depreciation:

A cash flow measured in real dollars:

Which of the following choices correctly states the rules for project acceptance under the net-present-value method and the internal-rate-of-return method?

Bath Works Company has $70,000 of depreciation expense and is subject to a 30% income tax rate.On an after-tax basis,depreciation results in a:

Capital budgeting tends to focus primarily on:

Raymon Company received $7,000 cash from the sale of a machine that had an $11,000 book value.If the company is subject to a 30% income tax rate,the net cash flow to use in a discounted-cash-flow analysis would be:

A machine is expected to produce increases in cash operating costs of $200,000 for the next six years.If the company has a 14% after-tax hurdle rate and is subject to a 30% income tax rate,the correct discounted net cash flow would be:

A company's hurdle rate is generally influenced by whether management uses the net-present-value method or the internal-rate-of-return method.

If income taxes are ignored,which of the following choices correctly notes how a project's depreciation is treated under the net-present-value method and the internal-rate-of-return method?

Assume that a capital project is being analyzed by a discounted-cash-flow approach,and an employee first assumes no income taxes and then later assumes a 30% income tax rate.How would depreciation expense be incorporated in the analysis?

The internal rate of return:

Burkette Company can acquire a $900,000 machine now that will benefit the firm over the next 6 years.Annual savings in cash operating costs are expected to total $190,000.If the hurdle rate is 8%,the investment's net present value is:

In eight years,Lai Sing Company plans to receive $11,000 cash from the sale of a machine that has a $16,000 book value.If the firm is subject to a 30% income tax rate and has a 12% after-tax hurdle rate,the correct discounted net cash flow would be:

Which of the following tools is sometimes used to rank investment proposals?

A machine is expected to produce annual savings in cash operating costs of $400,000 for the next six years.If the company has a 10% after-tax hurdle rate and is subject to a 30% income tax rate,the correct discounted net cash flow would be:

The Changing Role of Managerial Accounting in a Dynamic Business Environment

Basic Cost Management Concepts and Accounting for Mass Customization Operations

Product Costing and Cost Accumulation in a Batch Production Environment

Process Costing and Hybrid Product-Costing Systems

Activity-Based Costing and Management

Activity Analysis,cost Behavior,and Cost Estimation

Appendix I: The Sarbanes-Oxley Act, Internal Controls, and Management Accounting

Cost-Volume-Profit Analysis

Absorption and Variable Costing

Profit Planning and Activity-Based Budgeting

Standard Costing,Operational Performance Measures,and the Balanced Scorecard

Flexible Budgeting and the Management of Overhead and Support Activity Costs

Responsibility Accounting, Quality Control, and Environmental Cost Management

Investment Centers and Transfer Pricing

Decision Making: Relevant Costs and Benefits

Target Costing and Cost Analysis for Pricing Decisions

Allocation of Support Activity Costs and Joint Costs

compound Interest and the Concept of Present Value

Inventory Management

Filters

Exam 16: Capital Expenditure Decisions

The internal-rate-of-return method assumes that project funds are reinvested at the:

Which of the following project evaluation methods focuses on accounting income rather than cash flows?

A company that uses accelerated depreciation:

A cash flow measured in real dollars:

Which of the following choices correctly states the rules for project acceptance under the net-present-value method and the internal-rate-of-return method?

Bath Works Company has $70,000 of depreciation expense and is subject to a 30% income tax rate.On an after-tax basis,depreciation results in a:

Capital budgeting tends to focus primarily on:

Raymon Company received $7,000 cash from the sale of a machine that had an $11,000 book value.If the company is subject to a 30% income tax rate,the net cash flow to use in a discounted-cash-flow analysis would be:

A machine is expected to produce increases in cash operating costs of $200,000 for the next six years.If the company has a 14% after-tax hurdle rate and is subject to a 30% income tax rate,the correct discounted net cash flow would be:

A company's hurdle rate is generally influenced by whether management uses the net-present-value method or the internal-rate-of-return method.

If income taxes are ignored,which of the following choices correctly notes how a project's depreciation is treated under the net-present-value method and the internal-rate-of-return method?

Assume that a capital project is being analyzed by a discounted-cash-flow approach,and an employee first assumes no income taxes and then later assumes a 30% income tax rate.How would depreciation expense be incorporated in the analysis?

The internal rate of return:

Burkette Company can acquire a $900,000 machine now that will benefit the firm over the next 6 years.Annual savings in cash operating costs are expected to total $190,000.If the hurdle rate is 8%,the investment's net present value is:

In eight years,Lai Sing Company plans to receive $11,000 cash from the sale of a machine that has a $16,000 book value.If the firm is subject to a 30% income tax rate and has a 12% after-tax hurdle rate,the correct discounted net cash flow would be:

Which of the following tools is sometimes used to rank investment proposals?

A machine is expected to produce annual savings in cash operating costs of $400,000 for the next six years.If the company has a 10% after-tax hurdle rate and is subject to a 30% income tax rate,the correct discounted net cash flow would be:

The Changing Role of Managerial Accounting in a Dynamic Business Environment

Basic Cost Management Concepts and Accounting for Mass Customization Operations

Product Costing and Cost Accumulation in a Batch Production Environment

Process Costing and Hybrid Product-Costing Systems

Activity-Based Costing and Management

Activity Analysis,cost Behavior,and Cost Estimation

Appendix I: The Sarbanes-Oxley Act, Internal Controls, and Management Accounting

Cost-Volume-Profit Analysis

Absorption and Variable Costing

Profit Planning and Activity-Based Budgeting

Standard Costing,Operational Performance Measures,and the Balanced Scorecard

Flexible Budgeting and the Management of Overhead and Support Activity Costs

Responsibility Accounting, Quality Control, and Environmental Cost Management

Investment Centers and Transfer Pricing

Decision Making: Relevant Costs and Benefits

Target Costing and Cost Analysis for Pricing Decisions

Allocation of Support Activity Costs and Joint Costs

compound Interest and the Concept of Present Value

Inventory Management

Filters