Question 1

Describe what is meant by the time value of money.

Accepted Answer

Answers will vary
The time value of mone

Question 2

The present value of an annuity of $1 table could be cons

Accepted Answer

A) True 
 B)False

Question 3

Seth Morrison is considering alternative proposals that involve different amounts of investments.To compare different size investment proposals,it may be helpful for Sarah to prepare a relative ranking of the proposals by using a(n):

Accepted Answer

A)  present value index. 
B)  net present value. 
C)  internal rate of return. 
D)  none of these answers is correct. 
A)  present value index. 
B)  net present value. 
C)  internal rate of return. 
D)  none of these answers is correct.

Question 4

Butch's Barbecue thinks that offering delivery will increase their sales.Butch's is considering whether to purchase a used delivery

Accepted Answer

A)  About 58.3% 
B)  About 11.7% 
C)  About 23.3% 
D)  About 857.1% 
A)  About 58.3% 
B)  About 11.7% 
C)  About 23.3% 
D)  About 857.1%

Question 5

Joan Osborne is evaluating a potential capital investment.She has calculated the net present value using a minimum rate of return of 10%.Using this rate,the net present value is negative.What does this tell her about the rate of return expected for the project?

Accepted Answer

A)  If the net present value is negative;the expected rate of return for the project is greater than the 10% minimum or required rate of return. 
B)  If the net present value is negative;the expected rate of return for the project is less than the 10% minimum or required rate of return. 
C)  If the net present value is negative;the expected rate of return for the project is equal to the 10% minimum or required rate of return. 
D)  None of the other answers are correct. 
A)  If the net present value is negative;the expected rate of return for the project is greater than the 10% minimum or required rate of return. 
B)  If the net present value is negative;the expected rate of return for the project is less than the 10% minimum or required rate of return. 
C)  If the net present value is negative;the expected rate of return for the project is equal to the 10% minimum or required rate of return. 
D)  None of the other answers are correct.

Question 6

What amount of cash would result at the end of one year,if $15,000 is invested today and the rate of return is 8%?

Accepted Answer

A)  $16,200 
B)  $13,889 
C)  $15,000 
D)  $1,200 
A)  $16,200 
B)  $13,889 
C)  $15,000 
D)  $1,200

Question 7

Gordon Company is considering a three-year capital investment that will return $150,000 per year.The present value of this annuity at the company's required rate of return of 12% is $360,275.
Required:
Complete the table that has been started below to show the return on investment at 12% and the amount of investment recovered each year.Remember that the investment balance should be zero at the end of the three years.(Round to the nearest whole dollar. ) $\begin{array}{|c|c|c|c|c|c|}
\hline& \text { a } & \text { b } & \text { c } & \text { d } & \
\hline &\text { Investment } & \text { Annual } & \text { Return on } & \text { Recovered } & \text { Year-end } \
\hline \text {Time} & \text { Balance During } & \text { Cash } & \text { Investment } & \text { Investment }  & \text { Investment } \
\hline  \text { Period    } &\text { the Year } & \text { Inflow } & & & \text { Balance } \
\hline  1&\$ 360,275\
\hline 2 \
\hline 2 \
\hline  
\end{array}$

Accepted Answer

None

Question 8

What is the reinvestment assumption,and how does the assumption affect capital investment analyses?

Accepted Answer

Answers will vary
The reinvestment assum

Question 9

Indicate whether each of the following statements is

Accepted Answer

The further into the future a cash recei

Question 10

Newton Company is considering the purchase of an asset that will provide a depreciation tax shield of $10,000 per year for 10 years.Assuming the company is subject to a 40% tax rate during the period,and a zero salvage value,what is the depreciable cost of the new asset?

Accepted Answer

A)  $100,000 
B)  $250,000 
C)  $400,000 
D)  Can't be determined from the information provided 
A)  $100,000 
B)  $250,000 
C)  $400,000 
D)  Can't be determined from the information provided

Question 11

In performing capital budgeting analysis that takes time value of money into account,cash flows generated by a capital project are assumed to be reinvested at the project's rate of return.

Accepted Answer

A) True 
 B)False

Question 12

George Company has the opportunity to purchase an asset that costs $40,000.The asset is expected to increase net income by $10,000 per year.Depreciation expense will be $5,000 per year.Based on this information the payback period is:

Accepted Answer

A)  4 years. 
B)  2.5 years. 
C)  2.67 years. 
D)  8 years. 
A)  4 years. 
B)  2.5 years. 
C)  2.67 years. 
D)  8 years.

Question 13

Benson Corporation is considering an investment in equipment that would cost $50,000 and provide annual cash inflows of $14,000.The company's required rate of return is 12%;the internal rate of return for the investment is 10.5%.Should the company make this investment?

Accepted Answer

A)  No,since the internal rate of return is more than the company's required rate of return. 
B)  Yes,since the internal rate of return is less than the company's required rate of return. 
C)  No,since the internal rate of return is less than the company's required rate of return. 
D)  The answer cannot be determined. 
A)  No,since the internal rate of return is more than the company's required rate of return. 
B)  Yes,since the internal rate of return is less than the company's required rate of return. 
C)  No,since the internal rate of return is less than the company's required rate of return. 
D)  The answer cannot be determined.

Question 14

Kerwin Company is considering purchase of equipment that costs $50,000.If the useful life is expected to be 5 years and Crown's required rate of return is 12%,what is the minimum annual cash inflow that the equipment must offer for the investment to be acceptable? (Do not round your intermediate calculations.Round your final answer to the nearest dollar. )

Accepted Answer

A)  $8,929 
B)  $13,870 
C)  $12,076 
D)  $17,623 
A)  $8,929 
B)  $13,870 
C)  $12,076 
D)  $17,623

Question 15

Chichester Company is considering investing in the following two mutually exclusive projects: $\begin{array}{c}
\quad \quad \quad \quad \text { Annual Cash Inflows }\
\begin{array}{lll}
\text {Year}\
1\
2\
3\
4\
\text {Total}\
\end{array}
\begin{array}{c}
\text { Project A }\
\hline\$5,000 \
4,000 \
3,000 \
2,000 \
\hline \$ 14,000 \
\hline
\end{array}\quad \quad 
\begin{array}{c}
\text { Project B }\
\hline \$ 3,500 \
3,500 \
3,500 \
3,500 \
\hline \$14,000 \
\hline
\end{array}
\end{array}$ Required:
1)Which project is more desirable strictly in terms of cash inflows? Why?
2)Compute the present value of each project's cash inflows assuming the company's required rate of return is 10%.
3)What is the maximum amount Chichester should be willing to pay for each project?
4)Suppose each project costs $10,000.Which project(s)should be accepted?

Accepted Answer

Answers will vary
1)Project A is more de

Question 16

Which capital budgeting technique defines returns in terms of income instead of cash flows?

Accepted Answer

A)  The unadjusted rate of return method 
B)  The internal rate of return technique 
C)  The net present value technique 
D)  The payback period 
A)  The unadjusted rate of return method 
B)  The internal rate of return technique 
C)  The net present value technique 
D)  The payback period

Question 17

When a capital investment is expected to provide unequal annual cash inflows,the payback period can be calculated by accumulating the incremental cash inflows until the sum equals the amount of the original investment.

Accepted Answer

A) True 
 B)False

Question 18

Langdon Company is considering purchasing a capital investment that is expected to provide annual cash inflows of $10,000 per year for 3 years.Assuming that Langdon's required rate of return is 8%,what is the present value of these cash inflows? (Do not round your intermediate calculations.Round your final answer to the nearest dollar. )

Accepted Answer

A)  $24,018 
B)  $24,869 
C)  $33,121 
D)  $25,771 
A)  $24,018 
B)  $24,869 
C)  $33,121 
D)  $25,771

Question 19

Mary needs to have $20,000 one year from today.The formula to compute the amount of money that must be invested today is future value ÷ (1 - interest rate).

Accepted Answer

A) True 
 B)False

Question 20

Generally,a company should use the MACRS method to calculate depreciation on its income tax return,due to the effects of the time value of money.

Accepted Answer

A) True 
 B)False

Describe what is meant by the time value of money.

The present value of an annuity of $1 table could be cons

Seth Morrison is considering alternative proposals that involve different amounts of investments.To compare different size investment proposals,it may be helpful for Sarah to prepare a relative ranking of the proposals by using a(n):

Butch's Barbecue thinks that offering delivery will increase their sales.Butch's is considering whether to purchase a used delivery

Joan Osborne is evaluating a potential capital investment.She has calculated the net present value using a minimum rate of return of 10%.Using this rate,the net present value is negative.What does this tell her about the rate of return expected for the project?

What amount of cash would result at the end of one year,if $15,000 is invested today and the rate of return is 8%?

What is the reinvestment assumption,and how does the assumption affect capital investment analyses?

Indicate whether each of the following statements is

Newton Company is considering the purchase of an asset that will provide a depreciation tax shield of $10,000 per year for 10 years.Assuming the company is subject to a 40% tax rate during the period,and a zero salvage value,what is the depreciable cost of the new asset?

In performing capital budgeting analysis that takes time value of money into account,cash flows generated by a capital project are assumed to be reinvested at the project's rate of return.

George Company has the opportunity to purchase an asset that costs $40,000.The asset is expected to increase net income by $10,000 per year.Depreciation expense will be $5,000 per year.Based on this information the payback period is:

Benson Corporation is considering an investment in equipment that would cost $50,000 and provide annual cash inflows of $14,000.The company's required rate of return is 12%;the internal rate of return for the investment is 10.5%.Should the company make this investment?

Which capital budgeting technique defines returns in terms of income instead of cash flows?

When a capital investment is expected to provide unequal annual cash inflows,the payback period can be calculated by accumulating the incremental cash inflows until the sum equals the amount of the original investment.

Mary needs to have $20,000 one year from today.The formula to compute the amount of money that must be invested today is future value ÷ (1 - interest rate).

Generally,a company should use the MACRS method to calculate depreciation on its income tax return,due to the effects of the time value of money.

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

Describe what is meant by the time value of money.

The present value of an annuity of $1 table could be cons

Seth Morrison is considering alternative proposals that involve different amounts of investments.To compare different size investment proposals,it may be helpful for Sarah to prepare a relative ranking of the proposals by using a(n):

Butch's Barbecue thinks that offering delivery will increase their sales.Butch's is considering whether to purchase a used delivery

Joan Osborne is evaluating a potential capital investment.She has calculated the net present value using a minimum rate of return of 10%.Using this rate,the net present value is negative.What does this tell her about the rate of return expected for the project?

What amount of cash would result at the end of one year,if $15,000 is invested today and the rate of return is 8%?

What is the reinvestment assumption,and how does the assumption affect capital investment analyses?

Indicate whether each of the following statements is

Newton Company is considering the purchase of an asset that will provide a depreciation tax shield of $10,000 per year for 10 years.Assuming the company is subject to a 40% tax rate during the period,and a zero salvage value,what is the depreciable cost of the new asset?

In performing capital budgeting analysis that takes time value of money into account,cash flows generated by a capital project are assumed to be reinvested at the project's rate of return.

George Company has the opportunity to purchase an asset that costs $40,000.The asset is expected to increase net income by $10,000 per year.Depreciation expense will be $5,000 per year.Based on this information the payback period is:

Benson Corporation is considering an investment in equipment that would cost $50,000 and provide annual cash inflows of $14,000.The company's required rate of return is 12%;the internal rate of return for the investment is 10.5%.Should the company make this investment?

Which capital budgeting technique defines returns in terms of income instead of cash flows?

When a capital investment is expected to provide unequal annual cash inflows,the payback period can be calculated by accumulating the incremental cash inflows until the sum equals the amount of the original investment.

Mary needs to have $20,000 one year from today.The formula to compute the amount of money that must be invested today is future value ÷ (1 - interest rate).

Generally,a company should use the MACRS method to calculate depreciation on its income tax return,due to the effects of the time value of money.

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