Question 1

Multiplying the depreciation deduction by the tax rate yields a measure of the depreciation tax

Accepted Answer

A) deferral. 
B) benefit. 
C) payable. 
D) loss. 
A) deferral. 
B) benefit. 
C) payable. 
D) loss. B

Question 2

Why is it important for organizations to conduct post investment audits of capital projects?

Accepted Answer

The post investment audit provides management with an opportunity to evaluate the actual performance of the investment relative to expected performance.If possible,management can take corrective action when actual performance is poor relative to the expected performance.Management can also use the post investment audit to evaluate the performance of those who provided the original information about the investment and those who are in charge of the investment.In addition,management may use the information from the post investment audit to improve the evaluation process of future capital projects.

Question 3

If a project's profitability index is less than 1,the project's

Accepted Answer

A) discount rate is above its cost of capital. 
B) internal rate of return is less than zero. 
C) payback period is infinite. 
D) net present value is negative. 
A) discount rate is above its cost of capital. 
B) internal rate of return is less than zero. 
C) payback period is infinite. 
D) net present value is negative. D

Question 4

Depreciation expense provides a tax shield against the payment of taxes.

Accepted Answer

A) True 
 B)False

Question 5

What is the major advantage of the accounting rate of return relative to the other techniques that can be used to evaluate capital projects?

Accepted Answer

The accounting rate of return has two ma

Question 6

Ellis Retail
Ellis Retail is considering an investment in a delivery truck.Ellis has found a used truck that he can purchase for $8,000.He estimates the truck would last six years and increase his store's net cash revenues by $2,000 per year.At the end of six years,the truck would have no salvage value and would be discarded.Ellis will depreciate the truck using the straight-line method.
Refer to Ellis Retail.What is the accounting rate of return on the truck investment (based on average profit and average investment)?

Accepted Answer

A) 25.0% 
B) 50.0% 
C) 16.7% 
D) 8.3% 
A) 25.0% 
B) 50.0% 
C) 16.7% 
D) 8.3%

Question 7

Galveston Excursons Corporation
Galveston Excursons Corporation is considering the purchase of a new ocean-going vessel that could potentially reduce labor costs of its operation by a considerable margin.The new ship would cost $600,000 and would be fully depreciated by the straight-line method over 15 years.At the end of 15 years,the ship will have no value and will be scuttled.Galveston Excursons' cost of capital is 14 percent,and its marginal tax rate is 35 percent.
Refer to Galveston Excursons Corporation.What is the present value of the depreciation tax benefit of the new ship? (Round to the nearest dollar. )Present value tables or a financial calculator are required.

Accepted Answer

A) $ 85,991 
B) $159,697 
C) $210,000 
D) $245,688 
A) $ 85,991 
B) $159,697 
C) $210,000 
D) $245,688

Question 8

Atlantic Princess Corporation
Atlantic Princess Corporation is considering the purchase of a new ocean-going vessel that could potentially reduce labor costs of its operation by a considerable margin.The new ship would cost $500,000 and would be fully depreciated by the straight-line method over 10 years.At the end of 10 years,the ship will have no value and will be scuttled.Atlantic Princess's cost of capital is 12 percent,and its marginal tax rate is 40 percent.
Refer to Atlantic Princess Corporation.What is the present value of the depreciation tax benefit of the new ship? (Round to the nearest dollar. )Present value tables or a financial calculator are required.

Accepted Answer

A) $113,004 
B) $282,510 
C) $169,506 
D) $200,000 
A) $113,004 
B) $282,510 
C) $169,506 
D) $200,000

Question 9

Why is it important for managers to be able to rank projects?

Accepted Answer

Managers need to be able to rank project

Question 10

An organization's discount rate should be equal to or exceed the organization's cost of capital.

Accepted Answer

A) True 
 B)False

Question 11

If the net present value is positive,the actual return on a project exceeds the required rate of return.

Accepted Answer

A) True 
 B)False

Question 12

A judgment regarding which assets an entity should acquire to achieve its stated objectives is considered to be a(n)_______________________ decision.

Accepted Answer

The answer of A judgment regarding which assets an entity...

Question 13

Louwers Corporation recently sold a used machine for $50,000.The machine had a book value of $75,000 at the time of the sale.What is the after-tax cash flow from the sale,assuming the company's marginal tax rate is 25 percent?

Accepted Answer

A) $43,750 
B) $50,000 
C) $56,250 
D) $75,000 
A) $43,750 
B) $50,000 
C) $56,250 
D) $75,000

Question 14

The tax benefit from depreciation expense is the depreciation amount multiplied by the tax rate.

Accepted Answer

A) True 
 B)False

Question 15

If the profitability index for a project exceeds 1,then the project's

Accepted Answer

A) net present value is positive. 
B) internal rate of return is less than the project's discount rate. 
C) payback period is less than 5 years. 
D) accounting rate of return is greater than the project's internal rate of return. 
A) net present value is positive. 
B) internal rate of return is less than the project's discount rate. 
C) payback period is less than 5 years. 
D) accounting rate of return is greater than the project's internal rate of return.

Question 16

For an annuity due,the first cash flow occurs at the end of the period.

Accepted Answer

A) True 
 B)False

Question 17

Present value and future value computations assume the use of compound interest.

Accepted Answer

A) True 
 B)False

Question 18

The weighted average cost of capital approach to decision making is not directly affected by the

Accepted Answer

A) value of the common stock. 
B) current budget for capital expansion. 
C) cost of debt outstanding. 
D) proposed mix of debt,equity,and existing funds used to implement the project. 
A) value of the common stock. 
B) current budget for capital expansion. 
C) cost of debt outstanding. 
D) proposed mix of debt,equity,and existing funds used to implement the project.

Question 19

Jennings Creations
Jennings Creations is considering an investment in a computer that is capable of producing various images that are useful in the production of commercial art.The computer would cost $20,000 and have an expected life of eight years.The computer is expected to generate additional annual net cash receipts (before-tax)of $6,000 per year.The computer will be depreciated according to the straight-line method and the firm's marginal tax rate is 25 percent.
Refer to Jennings Creations.What is the after-tax payback period for the computer project?

Accepted Answer

A) 7.62 years 
B) 3.90 years 
C) 4.44 years 
D) 3.11 years 
A) 7.62 years 
B) 3.90 years 
C) 4.44 years 
D) 3.11 years

Question 20

A firm's discount rate is typically based on

Accepted Answer

A) the interest rates related to the firm's bonds. 
B) a project's internal rate of return. 
C) its cost of capital. 
D) the corporate Aa bond yielD. 
A) the interest rates related to the firm's bonds. 
B) a project's internal rate of return. 
C) its cost of capital. 
D) the corporate Aa bond yielD.

Multiplying the depreciation deduction by the tax rate yields a measure of the depreciation tax

Why is it important for organizations to conduct post investment audits of capital projects?

If a project's profitability index is less than 1,the project's

Depreciation expense provides a tax shield against the payment of taxes.

What is the major advantage of the accounting rate of return relative to the other techniques that can be used to evaluate capital projects?

Why is it important for managers to be able to rank projects?

An organization's discount rate should be equal to or exceed the organization's cost of capital.

If the net present value is positive,the actual return on a project exceeds the required rate of return.

A judgment regarding which assets an entity should acquire to achieve its stated objectives is considered to be a(n)_______________________ decision.

Louwers Corporation recently sold a used machine for $50,000.The machine had a book value of $75,000 at the time of the sale.What is the after-tax cash flow from the sale,assuming the company's marginal tax rate is 25 percent?

The tax benefit from depreciation expense is the depreciation amount multiplied by the tax rate.

If the profitability index for a project exceeds 1,then the project's

For an annuity due,the first cash flow occurs at the end of the period.

Present value and future value computations assume the use of compound interest.

The weighted average cost of capital approach to decision making is not directly affected by the

A firm's discount rate is typically based on

Introduction to Cost Accounting

Cost Terminology and Cost Behaviors

Predetermined Overhead Rates, Flexible Budgets, and Absorptionvariable Costing

Activity-Based Management and Activity-Based Costing

Job Order Costing

Process Costing

Standard Costing and Variance Analysis

The Master Budget

Break-Even Point and Cost-Volume-Profit Analysis

Relevant Information for Decision Making

Allocation of Joint Costs and Accounting for By-Products

Introduction to Cost Management Systems

Responsibility Accounting,support Department Allocations,and Transfer Pricing

Performance Measurement, balanced Scorecards, and Performance Rewards

Managing Costs and Uncertainty

Implementing Quality Concepts

Inventory and Production Management

Emerging Management Practices

Filters

Exam 15: Capital Budgeting

Multiplying the depreciation deduction by the tax rate yields a measure of the depreciation tax

Why is it important for organizations to conduct post investment audits of capital projects?

If a project's profitability index is less than 1,the project's

Depreciation expense provides a tax shield against the payment of taxes.

What is the major advantage of the accounting rate of return relative to the other techniques that can be used to evaluate capital projects?

Why is it important for managers to be able to rank projects?

An organization's discount rate should be equal to or exceed the organization's cost of capital.

If the net present value is positive,the actual return on a project exceeds the required rate of return.

A judgment regarding which assets an entity should acquire to achieve its stated objectives is considered to be a(n)_______________________ decision.

Louwers Corporation recently sold a used machine for $50,000.The machine had a book value of $75,000 at the time of the sale.What is the after-tax cash flow from the sale,assuming the company's marginal tax rate is 25 percent?

The tax benefit from depreciation expense is the depreciation amount multiplied by the tax rate.

If the profitability index for a project exceeds 1,then the project's

For an annuity due,the first cash flow occurs at the end of the period.

Present value and future value computations assume the use of compound interest.

The weighted average cost of capital approach to decision making is not directly affected by the

A firm's discount rate is typically based on

Introduction to Cost Accounting

Cost Terminology and Cost Behaviors

Predetermined Overhead Rates, Flexible Budgets, and Absorptionvariable Costing

Activity-Based Management and Activity-Based Costing

Job Order Costing

Process Costing

Standard Costing and Variance Analysis

The Master Budget

Break-Even Point and Cost-Volume-Profit Analysis

Relevant Information for Decision Making

Allocation of Joint Costs and Accounting for By-Products

Introduction to Cost Management Systems

Responsibility Accounting,support Department Allocations,and Transfer Pricing

Performance Measurement, balanced Scorecards, and Performance Rewards

Managing Costs and Uncertainty

Implementing Quality Concepts

Inventory and Production Management

Emerging Management Practices

Filters