Question 1

The rate that yields a net present value of zero for an investment is the:

Accepted Answer

A)  Internal rate of return. 
B)  Accounting rate of return. 
C)  Net present value rate of return. 
D)  Zero rate of return. 
E)  Payback rate of return. 
A)  Internal rate of return. 
B)  Accounting rate of return. 
C)  Net present value rate of return. 
D)  Zero rate of return. 
E)  Payback rate of return.

Question 2

Neither the payback period nor the accounting rate of return methods of evaluating investments considers the time value of money.

Accepted Answer

A) True 
 B)False

Question 3

A hurdle rate is the minimum acceptable rate of return for an investment.

Accepted Answer

A) True 
 B)False

Question 4

In ranking choices with the break-even time (BET) method, the investment with the longest BET gets the lowest rank.

Accepted Answer

A) True 
 B)False

Question 5

The time value of money concept works on the principle that a dollar tomorrow is worth more than a dollar today.

Accepted Answer

A) True 
 B)False

Question 6

Carmel Corporation is considering the purchase of a machine costing $36,000 with a 6-year useful life and no salvage value. Carmel uses straight-line depreciation and assumes that the annual cash inflow from the machine will be received uniformly throughout each year. In calculating the accounting rate of return, what is Carmel's average investment?

Accepted Answer

A)  $6,000. 
B)  $7,000. 
C)  $18,000. 
D)  $21,000. 
E)  $36,000. 
A)  $6,000. 
B)  $7,000. 
C)  $18,000. 
D)  $21,000. 
E)  $36,000.

Question 7

The accounting rate of return (ARR) is computed by dividing a project's after-tax net income by the average annual investment.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following cash flows is not considered when using the net present value method?

Accepted Answer

A)  Future cash inflows. 
B)  Future cash outflows. 
C)  Past cash outflows. 
D)  Non-uniform cash inflows. 
E)  Future year-end cash flows. 
A)  Future cash inflows. 
B)  Future cash outflows. 
C)  Past cash outflows. 
D)  Non-uniform cash inflows. 
E)  Future year-end cash flows.

Question 9

Coffer Co. is analyzing two projects for the future. Assume that only one project can be selected. $$\begin{array} { | l | c | r | } 
\hline & \text { Project X } & \text { Project Y } \
\hline \text { Cost of machine } & \$ 77,000 & \$ 55,000 \
\hline \text { Net cash flow: } & & \
\hline \text { Year 1 } & 28,000 & 2,000 \
\hline \text { Year 2 } & 28,000 & 25,000 \
\hline \text { Year 3 } & 28,000 & 25,000 \
\hline \text { Year 4 } & 0 & 20,000 \
\hline
\end{array}$$ If the company is using the payback period method and it requires a payback of three years or less, which project should be selected?

Accepted Answer

A)  Project Y. 
B)  Project X. 
C)  Both X and Y are acceptable projects. 
D)  Neither X nor Y is an acceptable project. 
E)  Project Y because it has a lower initial investment. 
A)  Project Y. 
B)  Project X. 
C)  Both X and Y are acceptable projects. 
D)  Neither X nor Y is an acceptable project. 
E)  Project Y because it has a lower initial investment.

Question 10

All capital investment evaluation methods use the time value of money concept.

Accepted Answer

A) True 
 B)False

Question 11

The accounting rate of return is calculated as:

Accepted Answer

A)  The after-tax income divided by the total investment. 
B)  The after-tax income divided by the annual average investment. 
C)  The cash flows divided by the annual average investment. 
D)  The cash flows divided by the total investment. 
E)  The annual average investment divided by the after-tax income. 
A)  The after-tax income divided by the total investment. 
B)  The after-tax income divided by the annual average investment. 
C)  The cash flows divided by the annual average investment. 
D)  The cash flows divided by the total investment. 
E)  The annual average investment divided by the after-tax income.

Question 12

Trevoline Company is deciding between two projects. Each project requires an initial investment of $350,000. The projected net cash flows for the two projects are listed below. The revenue is to be received at the end of each year. Trevoline requires a 10% return on its investments. The present value of an annuity of 1 and present value of an annuity factors for 10% are presented below. Use net present value to determine which project should be pursued and explain why.
 $$\begin{array} { c c c c c } 
\text { Periods } & \begin{array} { c } 
\text { Project A } \
\text { CashFlows }
\end{array} & \begin{array} { c } 
\text { Project B } \
\text { Cash Flows }
\end{array} & \begin{array} { c } 
\text { Present Value } \
\text { of } 1 \text { at } 10 \%
\end{array} & \begin{array} { c } 
\text { Present Value of an } \
\text { Annuity of } 1 \text { at } 10 \%
\end{array} \
1 & \$ 50,000 & \$ 160,000 & 0.9091 & 0.9091 \
2 & \$ 200,000 & \$ 175,000 & 0.8264 & 1.7355 \
3 & \$ 250,000 & \$ 175,000 & 0.7513 & 2.4869
\end{array}$$

Accepted Answer

@#IMG-DLM& Both projects have a positive net prese

Question 13

A company produces two boat models, Flyer and Skimmer. Both products are being considered for major investment projects next year. Relevant data follow:
Flyer Skimmer
New investment ……………….. $424,000 $380,000
Expected 3-year net cash flows:
Year 1 150,000 130,000
Year 2 160,000 130,000
Year 3 170,000 130,000
Required:
Use the payback period to evaluate these two investment projects.

Accepted Answer

Expected net Cumulative net
Year cash fl

Question 14

For projects financed from borrowed funds, the hurdle rate must exceed the interest rate paid on the borrowed funds.

Accepted Answer

A) True 
 B)False

Question 15

Capital budgeting decisions are generally based on:

Accepted Answer

A)  Tentative predictions of future outcomes. 
B)  Perfect predictions of future outcomes. 
C)  Results from past outcomes only. 
D)  Results from current outcomes only. 
E)  Speculation of interest rates and economic performance only. 
A)  Tentative predictions of future outcomes. 
B)  Perfect predictions of future outcomes. 
C)  Results from past outcomes only. 
D)  Results from current outcomes only. 
E)  Speculation of interest rates and economic performance only.

Question 16

The ________ is computed by discounting the future net cash flows from the investment at the project's required rate of return and then subtracting the initial amount invested.

Accepted Answer

The answer of The ________ is computed by discounting the...

Question 17

The accounting rate of return uses cash flows in its calculation.

Accepted Answer

A) True 
 B)False

Question 18

If two projects have the same risks, the same payback periods, and the same initial investments, they are equally attractive.

Accepted Answer

A) True 
 B)False

Question 19

A company purchases a machine for $800,000. The machine has an expected life of 9 years and no salvage value. The company anticipates a yearly after-tax net income of $60,000 to be received uniformly throughout each year. What is the accounting rate of return?

Accepted Answer

Accounting rate of r

Question 20

How does the calculation of break-even time (BET differ from the calculation of payback period (PBP)?

Accepted Answer

Break-even time is a variation of the pa

The rate that yields a net present value of zero for an investment is the:

Neither the payback period nor the accounting rate of return methods of evaluating investments considers the time value of money.

A hurdle rate is the minimum acceptable rate of return for an investment.

In ranking choices with the break-even time (BET) method, the investment with the longest BET gets the lowest rank.

The time value of money concept works on the principle that a dollar tomorrow is worth more than a dollar today.

The accounting rate of return (ARR) is computed by dividing a project's after-tax net income by the average annual investment.

Which of the following cash flows is not considered when using the net present value method?

All capital investment evaluation methods use the time value of money concept.

The accounting rate of return is calculated as:

For projects financed from borrowed funds, the hurdle rate must exceed the interest rate paid on the borrowed funds.

Capital budgeting decisions are generally based on:

The ________ is computed by discounting the future net cash flows from the investment at the project's required rate of return and then subtracting the initial amount invested.

The accounting rate of return uses cash flows in its calculation.

If two projects have the same risks, the same payback periods, and the same initial investments, they are equally attractive.

A company purchases a machine for $800,000. The machine has an expected life of 9 years and no salvage value. The company anticipates a yearly after-tax net income of $60,000 to be received uniformly throughout each year. What is the accounting rate of return?

How does the calculation of break-even time (BET differ from the calculation of payback period (PBP)?

Managerial Accounting Concepts and Principles

Job Order Costing and Analysis

Process Costing and Analysis

Activity Based Costing and Analysis

Cost Behavior Cost-Volume-Profit Analysis

Variable Costing and Analysis

Master Budgets and Performance Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Relevant Costing for Managerial Decisions

Reporting Cash Flows

Analysis of Financial Statements

Time Value of Money

Analyzing for Business Transactions

Partnership Accounting

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Exam 11: Capital Budgeting and Investment Analysis

The rate that yields a net present value of zero for an investment is the:

Neither the payback period nor the accounting rate of return methods of evaluating investments considers the time value of money.

A hurdle rate is the minimum acceptable rate of return for an investment.

In ranking choices with the break-even time (BET) method, the investment with the longest BET gets the lowest rank.

The time value of money concept works on the principle that a dollar tomorrow is worth more than a dollar today.

The accounting rate of return (ARR) is computed by dividing a project's after-tax net income by the average annual investment.

Which of the following cash flows is not considered when using the net present value method?

All capital investment evaluation methods use the time value of money concept.

The accounting rate of return is calculated as:

For projects financed from borrowed funds, the hurdle rate must exceed the interest rate paid on the borrowed funds.

Capital budgeting decisions are generally based on:

The ________ is computed by discounting the future net cash flows from the investment at the project's required rate of return and then subtracting the initial amount invested.

The accounting rate of return uses cash flows in its calculation.

If two projects have the same risks, the same payback periods, and the same initial investments, they are equally attractive.

A company purchases a machine for $800,000. The machine has an expected life of 9 years and no salvage value. The company anticipates a yearly after-tax net income of $60,000 to be received uniformly throughout each year. What is the accounting rate of return?

How does the calculation of break-even time (BET differ from the calculation of payback period (PBP)?

Managerial Accounting Concepts and Principles

Job Order Costing and Analysis

Process Costing and Analysis

Activity Based Costing and Analysis

Cost Behavior Cost-Volume-Profit Analysis

Variable Costing and Analysis

Master Budgets and Performance Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Relevant Costing for Managerial Decisions

Reporting Cash Flows

Analysis of Financial Statements

Time Value of Money

Analyzing for Business Transactions

Partnership Accounting

Filters