Question 1

A cash flow that only occurs in equal amounts each year is referred to as:

Accepted Answer

A)  a lump sum. 
B)  a perpetuity. 
C)  an annuity. 
D)  None of these. 
A)  a lump sum. 
B)  a perpetuity. 
C)  an annuity. 
D)  None of these.

Question 2

Which of the following statements about postaudits is correct?

Accepted Answer

A)  A postaudit should be conducted at the time a capital investment is purchased. 
B)  The postaudit of a capital investment project should be made using the same analytical technique that was used in deciding to make the investment. 
C)  The purpose of postaudits is to improve a company's cost-volume-profit analysis. 
D)  The postaudit process uses expected cash flows and the company's cost of capital. 
A)  A postaudit should be conducted at the time a capital investment is purchased. 
B)  The postaudit of a capital investment project should be made using the same analytical technique that was used in deciding to make the investment. 
C)  The purpose of postaudits is to improve a company's cost-volume-profit analysis. 
D)  The postaudit process uses expected cash flows and the company's cost of capital.

Question 3

The unadjusted rate of return is found by dividing the average incremental increase in annual operating income by the cost of the investment.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is not a major cash inflow from a capital investment?

Accepted Answer

A)  Incremental revenue 
B)  Increase in working capital 
C)  Cost savings 
D)  Salvage value 
A)  Incremental revenue 
B)  Increase in working capital 
C)  Cost savings 
D)  Salvage value

Question 5

Finnegan Company plans to invest in a new operating plant that is expected to cost $500,000.The projected incremental income from the investment is as follows: $\begin{array}{|l|c|}
\hline & \text { Net Income } \
\hline \text { Year } & \text { After Tax } \
\hline 1 & \$ 30,000 \
\hline 2 & \$ 45,000 \
\hline 3 & \$ 50,000 \
\hline 4 & \$ 55,000 \
\hline 5 & \$ 40,000 \
\hline 6 & \$ 20,000 \
\hline
\end{array}$ The unadjusted rate of return on the initial investment would be approximately:

Accepted Answer

A)  8.0%. 
B)  6.0%. 
C)  16.7%. 
D)  48.0%. 
A)  8.0%. 
B)  6.0%. 
C)  16.7%. 
D)  48.0%.

Question 6

Describe the decision rules management should use for accepting and rejecting capital projects under each of the following capital budgeting models: net present value model,internal rate of return model,payback period,and the unadjusted rate of return model.

Accepted Answer

Answers will vary
Management should acce

Question 7

Select the term from the list provided that best matches each of the following definitions or descriptions.Put the number of the term in the answer column. \(\begin{array}{|l|l|l|}
 \hline  \text {Your Answer } &\text {Definition or Description }&\text {Term }  \
\hline &\text { A. The concept that recognizes that the present value of an opportunity to receive one dollar in the future is less than one dollar  }&\text { 1. Accumulated conversion factors  }  \
\hline &\text {  B. Annuity with the cash flows occurring at the end of each period }&\text {  2. Arnuaty  }  \
\hline &\text {  C. Paid to investors and creditors for the use of their assets }&\text { 3. Caputal investments  }  \
\hline &\text { D. Review conducted to determine whether a project actually generated the results that were onginally expected  }&\text {  4. Cost of capital }  \
\hline &\text { E. Factors used to convert a series of future cash inflows into their present value equivalent  }&\text { 5. Intemal rate of return  }  \
\hline &\text { F. The rate that produces a net present value of zero for an investment in a capital project  }&\text {  6. Minimum rate of rebum  }  \
\hline &\text {  G. Purchase of long term operational assets that involves a long term commitment of funds }&\text {  7. Net present value method  }  \
\hline &\text { H . Technique that evaluates investment opportunities by determining the length of time necessary to recover the initial net investment  }&\text {  8. Ordinary annuity }  \
\hline &\text {  I. Measure of profitability computed by dividing the average incremental increase in annual net income by the average investment cost }&\text { 9. Payback method  }  \
\hline &\text { I. An equal series of cash flows received over equal intervals of time at a constant rate of return investment opportunity  }&\text { 10. Postaudit  }  \
\hline &\text {  J. Rate of retum required to persuade a company to accept an investment opportunity }&\text {  11. Time value of money }  \
\hline &\text { K. Evaluation technique in which future cash flows are discounted back to present value equivalents, from which the cost of the investment is subtracted  }&\text {  12. Unadjusted rate of reburn  }  \
\hline 
\end{array}\)

Accepted Answer

The answer of Select the term from the list provided...

Question 8

Describe the approach that managers may take in making capital investment decisions.

Accepted Answer

Answers will vary
Managers can choose fr

Question 9

Which of the following would be considered a cash inflow in determining the value of a capital investment?

Accepted Answer

A)  Incremental revenues from increased productivity 
B)  Cost savings from a reduction in labor hours 
C)  An increase in working capital commitments 
D)  Both incremental revenues from increased productivity and cost savings from a reduction in labor hours are correct. 
A)  Incremental revenues from increased productivity 
B)  Cost savings from a reduction in labor hours 
C)  An increase in working capital commitments 
D)  Both incremental revenues from increased productivity and cost savings from a reduction in labor hours are correct.

Question 10

Cash outflows generated by capital investments include all of the following except:

Accepted Answer

A)  annual depreciation of the capital asset. 
B)  initial investment in the capital asset. 
C)  increase in operating expenses. 
D)  increase in the amount of required working capital 
A)  annual depreciation of the capital asset. 
B)  initial investment in the capital asset. 
C)  increase in operating expenses. 
D)  increase in the amount of required working capital

Question 11

Southport Company is considering the purchase of a piece of equipment that costs $100,000.The equipment would be depreciated on a straight-line basis to its expected salvage value of $10,000 over its 10-year useful life.Assuming a tax rate of 40%,what is the annual amount of the depreciation tax shield provided by this investment?

Accepted Answer

A)  $4,000 
B)  $9,000 
C)  $3,600 
D)  None of these answers is correct. 
A)  $4,000 
B)  $9,000 
C)  $3,600 
D)  None of these answers is correct.

Question 12

Alcorn Company is considering purchasing equipment that costs $400,000.The equipment has an estimated useful life of 8 years and no salvage value.Alcorn believes that the annual cash inflows from using the equipment will be $80,000.
Required:
1)Calculate the net present value of the equipment assuming that Alcorn's cost of capital is 12%.Is the equipment an acceptable investment?
2)Calculate the net present value of the equipment assuming that Alcorn's cost of capital is 10%.Is the equipment an acceptable investment?
3)What general conclusion can you reach from your results to parts 1)and 2)?

Accepted Answer

Answers will vary
1)Net present value =

Question 13

Indicate whether each of the following statements is

Accepted Answer

The payback method does not take the tim

Question 14

When calculating the present value of an ordinary annuity,it is assumed that:

Accepted Answer

A)  cash flows will be reinvested at the required rate of return. 
B)  cash flows occur at the end of each accounting period. 
C)  the investor will wait until the end of the investment period to withdraw cash flows. 
D)  cash flows will be reinvested at the required rate of return and cash flows occur at the end of each accounting period. 
A)  cash flows will be reinvested at the required rate of return. 
B)  cash flows occur at the end of each accounting period. 
C)  the investor will wait until the end of the investment period to withdraw cash flows. 
D)  cash flows will be reinvested at the required rate of return and cash flows occur at the end of each accounting period.

Question 15

Which of the following is not a factor in explaining why the present value of a future dollar is less than one dollar?

Accepted Answer

A)  Inflation 
B)  Interest 
C)  Risk of failure to receive expected cash inflows 
D)  Historic cost 
A)  Inflation 
B)  Interest 
C)  Risk of failure to receive expected cash inflows 
D)  Historic cost

Question 16

Which one of the following statements best describes an ordinary annuity?

Accepted Answer

A)  Series of cash inflows of varying amounts collected at the end of each period 
B)  Series of cash flows of equal amounts collected at the end of each period 
C)  Series of cash flows of varying amounts collected at the beginning of each period 
D)  Series of cash flows of equal amounts collected at the beginning of each period 
A)  Series of cash inflows of varying amounts collected at the end of each period 
B)  Series of cash flows of equal amounts collected at the end of each period 
C)  Series of cash flows of varying amounts collected at the beginning of each period 
D)  Series of cash flows of equal amounts collected at the beginning of each period

Question 17

Which statement characterizes the time value of money concept?

Accepted Answer

A)  The future value of a present dollar is greater than one dollar. 
B)  The present value of a future dollar is greater than one dollar. 
C)  The timing of cash flows is not relevant to decision making. 
D)  None of these answers is correct. 
A)  The future value of a present dollar is greater than one dollar. 
B)  The present value of a future dollar is greater than one dollar. 
C)  The timing of cash flows is not relevant to decision making. 
D)  None of these answers is correct.

Question 18

Fenwick Company is considering purchase of equipment that costs $60,000 and is expected to offer annual cash inflows of $16,645 for 5 years.Fenwick Company's required rate of return is 10%.The internal rate of return of this investment project is closest to:

Accepted Answer

A)  12%. 
B)  27%. 
C)  17%. 
D)  11%. 
A)  12%. 
B)  27%. 
C)  17%. 
D)  11%.

Question 19

Capital investment decisions involve investments in current assets.

Accepted Answer

A) True 
 B)False

Question 20

The cost of capital is called all of the following except:

Accepted Answer

A)  cutoff rate. 
B)  discount rate. 
C)  hurdle rate. 
D)  All of these are terms for the cost of capital. 
A)  cutoff rate. 
B)  discount rate. 
C)  hurdle rate. 
D)  All of these are terms for the cost of capital.

A cash flow that only occurs in equal amounts each year is referred to as:

Which of the following statements about postaudits is correct?

The unadjusted rate of return is found by dividing the average incremental increase in annual operating income by the cost of the investment.

Which of the following is not a major cash inflow from a capital investment?

Describe the decision rules management should use for accepting and rejecting capital projects under each of the following capital budgeting models: net present value model,internal rate of return model,payback period,and the unadjusted rate of return model.

Describe the approach that managers may take in making capital investment decisions.

Which of the following would be considered a cash inflow in determining the value of a capital investment?

Cash outflows generated by capital investments include all of the following except:

Indicate whether each of the following statements is

When calculating the present value of an ordinary annuity,it is assumed that:

Which of the following is not a factor in explaining why the present value of a future dollar is less than one dollar?

Which one of the following statements best describes an ordinary annuity?

Which statement characterizes the time value of money concept?

Fenwick Company is considering purchase of equipment that costs $60,000 and is expected to offer annual cash inflows of $16,645 for 5 years.Fenwick Company's required rate of return is 10%.The internal rate of return of this investment project is closest to:

Capital investment decisions involve investments in current assets.

The cost of capital is called all of the following except:

Management Accounting and Corporate Governance

Cost Behavior, Operating Leverage, and Profitability Analysis

Analysis of Cost,Volume,and Pricing to Increase Profitability

Cost Accumulation,Tracing,and Allocation

Cost Management in an Automated Business Environment: ABC, ABM, and TQM

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Responsibility Accounting

Product Costing in Service and Manufacturing Entities

Job-Order, Process, and Hybrid Costing Systems

Financial Statement Analysis

Statement of Cash Flows

Filters

Exam 10: Planning for Capital Investments

A cash flow that only occurs in equal amounts each year is referred to as:

Which of the following statements about postaudits is correct?

The unadjusted rate of return is found by dividing the average incremental increase in annual operating income by the cost of the investment.

Which of the following is not a major cash inflow from a capital investment?

Describe the decision rules management should use for accepting and rejecting capital projects under each of the following capital budgeting models: net present value model,internal rate of return model,payback period,and the unadjusted rate of return model.

Describe the approach that managers may take in making capital investment decisions.

Which of the following would be considered a cash inflow in determining the value of a capital investment?

Cash outflows generated by capital investments include all of the following except:

Indicate whether each of the following statements is

When calculating the present value of an ordinary annuity,it is assumed that:

Which of the following is not a factor in explaining why the present value of a future dollar is less than one dollar?

Which one of the following statements best describes an ordinary annuity?

Which statement characterizes the time value of money concept?

Fenwick Company is considering purchase of equipment that costs $60,000 and is expected to offer annual cash inflows of $16,645 for 5 years.Fenwick Company's required rate of return is 10%.The internal rate of return of this investment project is closest to:

Capital investment decisions involve investments in current assets.

The cost of capital is called all of the following except:

Management Accounting and Corporate Governance

Cost Behavior, Operating Leverage, and Profitability Analysis

Analysis of Cost,Volume,and Pricing to Increase Profitability

Cost Accumulation,Tracing,and Allocation

Cost Management in an Automated Business Environment: ABC, ABM, and TQM

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Responsibility Accounting

Product Costing in Service and Manufacturing Entities

Job-Order, Process, and Hybrid Costing Systems

Financial Statement Analysis

Statement of Cash Flows

Filters