Question 1

The systematic follow-up on a capital project to see how the project actually turns out is commonly known as:

Accepted Answer

A) capital budgeting assessment (CB
A) . 
B) a post-audit. 
C) control of capital expenditures (CC
E) . 
D) overall cost performance. 
E) the cost evaluation phase. 
A) capital budgeting assessment (CB
A) . 
B) a post-audit. 
C) control of capital expenditures (CC
E) . 
D) overall cost performance. 
E) the cost evaluation phase.

Question 2

A profitability index can be used to rank investment proposals.
Required:
A. Define the profitability index.
B. Two projects are under consideration. Project I has a net present value of $20,000 whereas project II has a net present value of $200,000. Which project is better? Explain. What weakness in a net-present-value analysis does the profitability index address?

Accepted Answer

A. The profitability index equals the pr

Question 3

Union Jack Company is considering the purchase of equipment that costs $60,000 and promises to reduce annual cash operating costs by $10,000 over each of the next five years. Which of the following is a proper way to evaluate this investment if the company desires a 10% return on all investments?

Accepted Answer

A) $60,000 vs. $10,000 x 5. 
B) $60,000 vs. $60,000 x 0.621. 
C) $60,000 vs. $60,000 x 3.791. 
D) $60,000 vs. $10,000 x 3.791. 
E) $60,000 x 0.909 vs. $10,000 x 3.791. 
A) $60,000 vs. $10,000 x 5. 
B) $60,000 vs. $60,000 x 0.621. 
C) $60,000 vs. $60,000 x 3.791. 
D) $60,000 vs. $10,000 x 3.791. 
E) $60,000 x 0.909 vs. $10,000 x 3.791.

Question 4

Blueteeth Incorporated plans to incur $306,000 of salaries expense and produce $560,000 of additional sales revenue if a capital project is implemented. Assuming a 23% tax rate, these two items collectively should appear in a capital budgeting analysis as:

Accepted Answer

A) a $195,580 inflow. 
B) a $195,580 outflow. 
C) a $254,000 inflow. 
D) a $254,000 outflow. 
E) $560,000 inflow. 
A) a $195,580 inflow. 
B) a $195,580 outflow. 
C) a $254,000 inflow. 
D) a $254,000 outflow. 
E) $560,000 inflow.

Question 5

The true economic yield produced by an asset is summarized by the asset's:

Accepted Answer

A) non-discounted cash flows. 
B) net present value. 
C) future value. 
D) annuity discount factor. 
E) internal rate of return. 
A) non-discounted cash flows. 
B) net present value. 
C) future value. 
D) annuity discount factor. 
E) internal rate of return.

Question 6

McClaren Inc. is considering a $400,000 investment in new equipment that is anticipated to produce the following net cash inflows: $\begin{array}{lr}
\text { Year: } &\text { Net Cash} \
&\text { Inflows } \
1 & \$ 100,000 \
2 & 200,000 \
3 & 50,000 \
4 & 60,000 \
5 & 140,000
\end{array}$ If cash flows occur evenly throughout a year, the equipment's payback period is:

Accepted Answer

A) 2 years. 
B) 3 years. 
C) 3 years, 10 months. 
D) 4 years. 
E) 5 years. 
A) 2 years. 
B) 3 years. 
C) 3 years, 10 months. 
D) 4 years. 
E) 5 years.

Question 7

A company's hurdle rate is generally influenced by:

Accepted Answer

A) the cost of capital. 
B) the firm's depreciable assets. 
C) whether management uses the net-present-value method or the internal-rate-of-return method. 
D) project risk. 
E) the cost of capital and the firm's depreciable assets. 
A) the cost of capital. 
B) the firm's depreciable assets. 
C) whether management uses the net-present-value method or the internal-rate-of-return method. 
D) project risk. 
E) the cost of capital and the firm's depreciable assets.

Question 8

A depreciation tax shield is a(n):

Accepted Answer

A) after-tax cash outflow. 
B) increase in income tax. 
C) non-cash factor. 
D) reduction in income tax. 
E) sporadic fluctuation in income tax. 
A) after-tax cash outflow. 
B) increase in income tax. 
C) non-cash factor. 
D) reduction in income tax. 
E) sporadic fluctuation in income tax.

Question 9

Lorax Corporation is considering the acquisition of a new machine that is expected to produce annual savings in cash operating costs of $30,000 before income taxes. The machine costs $100,000, has a useful life of five years, and no salvage value. Lorax uses straight-line depreciation on all assets, is subject to a 30% income tax rate, and has an after-tax hurdle rate of 8%.
Required:
A. Compute the machine's payback period.
B. Compute the machine's accounting rate of return on the initial investment.
C. Compute the machine's net present value.

Accepted Answer

A. Depreciation: @#LAT-DLM& years @#LAT-DLM&
Annual after-ta

Question 10

If a proposal's profitability index is greater than one:

Accepted Answer

A) the net present value is negative. 
B) the net present value is positive. 
C) the net present value is zero. 
D) the proposal should always be accepted. 
E) the proposal should always be rejected. 
A) the net present value is negative. 
B) the net present value is positive. 
C) the net present value is zero. 
D) the proposal should always be accepted. 
E) the proposal should always be rejected.

The systematic follow-up on a capital project to see how the project actually turns out is commonly known as:

Union Jack Company is considering the purchase of equipment that costs $60,000 and promises to reduce annual cash operating costs by $10,000 over each of the next five years. Which of the following is a proper way to evaluate this investment if the company desires a 10% return on all investments?

Blueteeth Incorporated plans to incur $306,000 of salaries expense and produce $560,000 of additional sales revenue if a capital project is implemented. Assuming a 23% tax rate, these two items collectively should appear in a capital budgeting analysis as:

The true economic yield produced by an asset is summarized by the asset's:

McClaren Inc. is considering a $400,000 investment in new equipment that is anticipated to produce the following net cash inflows: Year: Net Cash Inflows 1 \ 100,000 2 200,000 3 50,000 4 60,000 5 140,000 If cash flows occur evenly throughout a year, the equipment's payback period is:

A company's hurdle rate is generally influenced by:

A depreciation tax shield is a(n):

If a proposal's profitability index is greater than one:

The Changing Role of Managerial Accounting

Basic Cost Management Concepts

Product Costing and Cost Accumulation

Process Costing and Hybrid Product-Costing Systems

Activity-Based Costing and Management

Activity Analysis, Cost Behaviour, and Cost Estimation

Cost-Volume-Profit Analysis, Absorption and Variable Costing

Profit Planning and Activity-Based Budgeting

Standard Costing and Flexible Budgeting

Cost Management Tools

Responsibility Accounting, Investment Centres, 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

Filters

Exam 14: Capital Expenditure Decisions

The systematic follow-up on a capital project to see how the project actually turns out is commonly known as:

Union Jack Company is considering the purchase of equipment that costs $60,000 and promises to reduce annual cash operating costs by $10,000 over each of the next five years. Which of the following is a proper way to evaluate this investment if the company desires a 10% return on all investments?

Blueteeth Incorporated plans to incur $306,000 of salaries expense and produce $560,000 of additional sales revenue if a capital project is implemented. Assuming a 23% tax rate, these two items collectively should appear in a capital budgeting analysis as:

The true economic yield produced by an asset is summarized by the asset's:

McClaren Inc. is considering a $400,000 investment in new equipment that is anticipated to produce the following net cash inflows: Year: Net Cash Inflows 1 \ 100,000 2 200,000 3 50,000 4 60,000 5 140,000 If cash flows occur evenly throughout a year, the equipment's payback period is:

A company's hurdle rate is generally influenced by:

A depreciation tax shield is a(n):

If a proposal's profitability index is greater than one:

The Changing Role of Managerial Accounting

Basic Cost Management Concepts

Product Costing and Cost Accumulation

Process Costing and Hybrid Product-Costing Systems

Activity-Based Costing and Management

Activity Analysis, Cost Behaviour, and Cost Estimation

Cost-Volume-Profit Analysis, Absorption and Variable Costing

Profit Planning and Activity-Based Budgeting

Standard Costing and Flexible Budgeting

Cost Management Tools

Responsibility Accounting, Investment Centres, 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

Filters