Question 1

If a project generates a net present value of zero,the profitability index for the project will

Accepted Answer

A) equal zero. 
B) equal 1. 
C) equal -1. 
D) be undefineD. 
A) equal zero. 
B) equal 1. 
C) equal -1. 
D) be undefineD.

Question 2

Which of the following capital budgeting techniques may potentially ignore part of a project's relevant cash flows?

Accepted Answer

A) net present value 
B) internal rate of return 
C) payback period 
D) profitability index 
A) net present value 
B) internal rate of return 
C) payback period 
D) profitability index

Question 3

The accounting rate of return considers the time value of money.

Accepted Answer

A) True 
 B)False

Question 4

For a profitable company,an increase in the rate of depreciation on a specific project could

Accepted Answer

A) increase the project's profitability index. 
B) increase the project's payback period. 
C) decrease the project's net present value. 
D) increase the project's internal rate of return. 
A) increase the project's profitability index. 
B) increase the project's payback period. 
C) decrease the project's net present value. 
D) increase the project's internal rate of return.

Question 5

When information on actual project results is gathered and compared to actual results,the process is referred to as a(n)______________________________________.

Accepted Answer

postinvest

Question 6

Which method of evaluating capital projects assumes that cash inflows can be reinvested at the discount rate?

Accepted Answer

A) internal rate of return 
B) payback period 
C) profitability index 
D) accounting rate of return 
A) internal rate of return 
B) payback period 
C) profitability index 
D) accounting rate of return

Question 7

What factors influence the present value of the depreciation tax benefit?

Accepted Answer

The depreciation tax benefit i

Question 8

A ratio comparing the present value of a project's net cash inflows to the project's net investment is referred to as the ____________________________________.

Accepted Answer

The answer of A ratio comparing the present value of...

Question 9

The net present value method of evaluating proposed investments

Accepted Answer

A) measures a project's internal rate of return. 
B) ignores cash flows beyond the payback period. 
C) applies only to mutually exclusive investment proposals. 
D) discounts cash flows at a minimum desired rate of return. 
A) measures a project's internal rate of return. 
B) ignores cash flows beyond the payback period. 
C) applies only to mutually exclusive investment proposals. 
D) discounts cash flows at a minimum desired rate of return.

Question 10

Does a project that generates a positive internal rate of return also have a positive net present value? Explain.

Accepted Answer

No.A positive IRR does not necessarily m

Question 11

The weighted average cost of capital represents the

Accepted Answer

A) cost of bonds,preferred stock,and common stock divided by the three sources. 
B) equivalent units of capital used by the organization. 
C) overall cost of capital from all organization financing sources. 
D) overall cost of dividends plus interest paid by the organization. 
A) cost of bonds,preferred stock,and common stock divided by the three sources. 
B) equivalent units of capital used by the organization. 
C) overall cost of capital from all organization financing sources. 
D) overall cost of dividends plus interest paid by the organization.

Question 12

An investment project is expected to yield $10,000 in annual revenues,has $2,000 in fixed costs per year,and requires an initial investment of $5,000.Given a cost of goods sold of 60 percent of sales,what is the payback period in years?

Accepted Answer

A) 2.50 
B) 5.00 
C) 2.00 
D) 1.25 
A) 2.50 
B) 5.00 
C) 2.00 
D) 1.25

Question 13

Webber Corporation is interested in purchasing a state-of-the-art stamping machine for its manufacturing plant.The new machine has been designed to basically eliminate all errors and defects in the production process.The new machine will cost $180,000,and have a salvage value of $80,000 at the end of its eight-year useful life.Stone has determined that cash inflows for years 1 through 8 will be as follows: $33,000;$58,000;$28,000;$39,000;$27,000;$22,000,$27,000 and $29,000,respectively.Maintenance will be required in years 3 and 6 at $14,000 and $9,000 respectively.Webber uses a discount rate of 12 percent and wants projects to have a payback period of no longer than six years.
Present value tables or a financial calculator are required.
 a. $\text { Compute the net present value of the new machine }$
b. $\text { Compute the firm's profitability index }$ 
 c. $\text { Compute the payback period }$ 
 d. $\text { Evaluate this investment proposal for Webber Company. }$

Accepted Answer

$184,000 - $171,000 = $9,000/$13,000 = .

Question 14

Weaver Corporation
Weaver Corporation is considering an investment in a new product line.The investment would require an immediate outlay of $100,000 for equipment and an immediate investment of $200,000 in working capital.The investment is expected to generate a net cash inflow of $100,000 in year 1,$150,000 in year 2,and $200,000 in years 3 and 4.The equipment would be scrapped (for no salvage)at the end of the fourth year and the working capital would be liquidated.The equipment would be fully depreciated by the straight-line method over its four-year life.
Refer to Weaver Corporation.What is the payback period for the investment?

Accepted Answer

After the first two years,$250,000 of th

Question 15

Capital budgeting uses both financial and non-financial criteria when evaluating projects.

Accepted Answer

A) True 
 B)False

Question 16

Broncho Industries is considering the purchase of a $100,000 machine that is expected to result in a decrease of $15,000 per year in cash expenses.This machine,which has no residual value,has an estimated useful life of 10 years and will be depreciated on a straight-line basis.For this machine,the accounting rate of return would be

Accepted Answer

A) 10 percent. 
B) 15 percent. 
C) 30 percent. 
D) 35 percent. 
A) 10 percent. 
B) 15 percent. 
C) 30 percent. 
D) 35 percent.

Question 17

The payback period is the

Accepted Answer

A) length of time over which the investment will provide cash inflows. 
B) length of time over which the initial investment is recovered. 
C) shortest length of time over which an investment may be depreciated. 
D) shortest length of time over which the net present value will be positive. 
A) length of time over which the investment will provide cash inflows. 
B) length of time over which the initial investment is recovered. 
C) shortest length of time over which an investment may be depreciated. 
D) shortest length of time over which the net present value will be positive.

Question 18

A decision in which projects are ranked according to their impact on achieving company objectives is a preference decision.

Accepted Answer

A) True 
 B)False

Question 19

The pre-tax and after-tax cash flows would be the same for all of the following items except

Accepted Answer

A) the liquidation of working capital at the end of a project's life. 
B) the initial (outlay)cost of an investment. 
C) the sale of an asset at its book value. 
D) a cash payment for salaries and wages. 
A) the liquidation of working capital at the end of a project's life. 
B) the initial (outlay)cost of an investment. 
C) the sale of an asset at its book value. 
D) a cash payment for salaries and wages.

Question 20

The profitability index is

Accepted Answer

A) the ratio of net cash flows to the original investment. 
B) the ratio of the present value of cash flows to the original investment. 
C) a capital budgeting evaluation technique that doesn't use discounted values. 
D) a mandatory technique when capital rationing is useD. 
A) the ratio of net cash flows to the original investment. 
B) the ratio of the present value of cash flows to the original investment. 
C) a capital budgeting evaluation technique that doesn't use discounted values. 
D) a mandatory technique when capital rationing is useD.

If a project generates a net present value of zero,the profitability index for the project will

Which of the following capital budgeting techniques may potentially ignore part of a project's relevant cash flows?

The accounting rate of return considers the time value of money.

For a profitable company,an increase in the rate of depreciation on a specific project could

When information on actual project results is gathered and compared to actual results,the process is referred to as a(n)______________________________________.

Which method of evaluating capital projects assumes that cash inflows can be reinvested at the discount rate?

What factors influence the present value of the depreciation tax benefit?

A ratio comparing the present value of a project's net cash inflows to the project's net investment is referred to as the ____________________________________.

The net present value method of evaluating proposed investments

Does a project that generates a positive internal rate of return also have a positive net present value? Explain.

The weighted average cost of capital represents the

An investment project is expected to yield $10,000 in annual revenues,has $2,000 in fixed costs per year,and requires an initial investment of $5,000.Given a cost of goods sold of 60 percent of sales,what is the payback period in years?

Capital budgeting uses both financial and non-financial criteria when evaluating projects.

The payback period is the

A decision in which projects are ranked according to their impact on achieving company objectives is a preference decision.

The pre-tax and after-tax cash flows would be the same for all of the following items except

The profitability index is

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

If a project generates a net present value of zero,the profitability index for the project will

Which of the following capital budgeting techniques may potentially ignore part of a project's relevant cash flows?

The accounting rate of return considers the time value of money.

For a profitable company,an increase in the rate of depreciation on a specific project could

When information on actual project results is gathered and compared to actual results,the process is referred to as a(n)______________________________________.

Which method of evaluating capital projects assumes that cash inflows can be reinvested at the discount rate?

What factors influence the present value of the depreciation tax benefit?

A ratio comparing the present value of a project's net cash inflows to the project's net investment is referred to as the ____________________________________.

The net present value method of evaluating proposed investments

Does a project that generates a positive internal rate of return also have a positive net present value? Explain.

The weighted average cost of capital represents the

An investment project is expected to yield $10,000 in annual revenues,has $2,000 in fixed costs per year,and requires an initial investment of $5,000.Given a cost of goods sold of 60 percent of sales,what is the payback period in years?

Capital budgeting uses both financial and non-financial criteria when evaluating projects.

The payback period is the

A decision in which projects are ranked according to their impact on achieving company objectives is a preference decision.

The pre-tax and after-tax cash flows would be the same for all of the following items except

The profitability index is

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