Exam 11: Capital Investments

The manager at Home Manufacturing Center needs to compute the effect of cash operating flows on the net income tax after the investment of a new home repair and design machine.The operating cost inflows from investment in the machine equal $150,000 with a 40% tax rate that resulted in $60,000 income taxes,excluding the effect of depreciation. Required Compute the after-tax cash flow from operations.What is the company's net income tax and cash flow from operations if the manager claims an additional deprecation deduction of $50,000 at the 40% tax rate?

Which of the following is not true about customer value and capital budgeting?

What are the weaknesses of the payback method?

The ________ method calculates return using after-tax cash flows and the time value of money.

Cutting Edge Concrete (CEC)set the industry standard for high-performance concrete from the company's conception in 2008 until 2012.New environmentally beneficial innovations opened a new marketing arena for concrete manufacturers in 2008,with concrete mixes that reduced pollution caused by traffic. In Stage I,the project-identification stage,CEC determined that green construction ensured the company remained competitive in industry. In Stage II,the information-gathering stage,CEC contracted a cost-benefit analysis and cost-effectiveness analysis to measure the effect that adoption of new technology would have on revenue.CEC finds that the after-tax initial investment for the machine is $410,000 and the machines have a useful life of 8 years.Cash inflows are estimated to cost $11,000 and $21,000 from the disposal of old machine is $21,000. Required Compute the net initial investment for the machine.

The term used to describe consumers that switch frequently from one company to another company is known as:

When managers make predictions,they forecast all potential cash flows attributable to the alternative projects.

Depreciation costs directly affect cash flows because depreciation is a cash cost.

Is the IRR method always accurate?

When managers incorporate inflation into the NPV method,the key is internal consistency.

Capital investment decisions that are strategic in nature require managers to consider a broad range of factors that may be difficult to estimate.

The manager at the Chesapeake Bay Crab House reported a current disposal value of an old fish processing machine at $8,200.The current book value on the old machine is $43,500. Required Compute the loss on disposal of the old machine.

The nominal approach is easier to understand and apply because it uses nominal cash flows from accounting systems and nominal rates of return from financial markets.

The manager should perform postinvestment audits only after project outcomes have stabilized because performing audits too early may yield misleading feedback.

________ measure all expected future cash inflows and outflows of a project discounted back to the present point in time.

The ________ divides the average annual income of a project by a measure of the investment in it.

What is the first step of the internal rate-of-return (IRR)method?

Jim's Renovation Services need to purchase a new super hydraulic machine to complete a new job.The initial investment on the machine is $250,000.The machine is expected to generate $130,000 in uniform cash flow each year and it has a five-year expected life. Required Compute the payback period.

Why should managers receive evaluations on a project-by-project basis?

The ________ method calculates return using operating-income numbers after considering accruals and taxes.