Question 1

A postaudit evaluates the overall outcome of the investment and proposes corrective action if needed.

Accepted Answer

A) True 
 B)False  True

Question 2

Jackson Company invests in a new piece of equipment costing $40,000. The equipment is expected to yield the following amounts per year for the equipment's four-year useful life:   What is the net present value of this investment in equipment?

Accepted Answer

A)  $81,592 
B)  $41,592 
C)  $(4,480) 
D)  $52,452 
A)  $81,592 
B)  $41,592 
C)  $(4,480) 
D)  $52,452 B

Question 3

In capital investment decision making, it is usually assumed that managers should select projects that attempt to maximize the wealth of the owners of the firm.

Accepted Answer

A) True 
 B)False  True

Question 4

A series of equal future cash flows is a(n)

Accepted Answer

A)  future amount. 
B)  future earnings. 
C)  annuity. 
D)  earnings to be discounted. 
E)  insurance. 
A)  future amount. 
B)  future earnings. 
C)  annuity. 
D)  earnings to be discounted. 
E)  insurance.

Question 5

The internal rate of return model does not consistently result in choices that maximize firm wealth.

Accepted Answer

A) True 
 B)False

Question 6

Figure 14-6.Present value of $1
   Present value of an Annuity of $1
  
-Refer to Figure 14-6. Roman Knoze is considering two investments. Each will cost $20,000 initially. Project 1 will return annual cash flows of $10,000 in each of three years. Project 2 will return $5,000 in year 1, $10,000 in year 2, and $15,000 in year 3. Roman requires a minimum rate of return of 10%. What is the net present value of Project 2?

Accepted Answer

A)  $5,670 
B)  $20,000 
C)  $2,530 
D)  $24,070 
E)  $4,070 
A)  $5,670 
B)  $20,000 
C)  $2,530 
D)  $24,070 
E)  $4,070

Question 7

Match each item with the correct statement below.
-can be used as a rough measure of risk and liquidity

Accepted Answer

A) Payback period 
B) Accounting rate of return 
C) Net present value 
D) Internal rate of return 
E) Discount rate
F)Annuity
G)Post-audit
H)Compounding of interest 
A) Payback period 
B) Accounting rate of return 
C) Net present value 
D) Internal rate of return 
E) Discount rate
F)Annuity
G)Post-audit
H)Compounding of interest

Question 8

Figure 14-9.Kenner Company is considering two projects.   Present value of an Annuity of $1 in Arrears
  
-Refer to Figure 14-9. Suppose that Kenner Company requires a minimum rate of return of 8%. Which project is better in terms of net present value?

Accepted Answer

A)  project A with NPV of $10,585 
B)  project B with NPV of $7,756 
C)  project A with NPV of $4,210 
D)  project B with NPV of $1,212 
E)  both projects have the same NPV 
A)  project A with NPV of $10,585 
B)  project B with NPV of $7,756 
C)  project A with NPV of $4,210 
D)  project B with NPV of $1,212 
E)  both projects have the same NPV

Question 9

Suppose that the actual cost of capital is 10%, but the firm chooses a discount rate of 18%. Managers of that company will be more likely to choose relatively short term investments.

Accepted Answer

A) True 
 B)False

Question 10

Buster Evans is considering investing $20,000 in a project with the following annual cash revenues and expenses:   Depreciation will be $4,000 per year.
What is the accounting rate of return on the investment?

Accepted Answer

A)  15% 
B)  35% 
C)  70% 
D)  75% 
E)  None of these. 
A)  15% 
B)  35% 
C)  70% 
D)  75% 
E)  None of these.

Question 11

One drawback to the internal rate of return model is that cash inflows must occur evenly over the life of the investment.

Accepted Answer

A) True 
 B)False

Question 12

If net present value is negative, it means that the return on the investment is

Accepted Answer

A)  less than the discount rate. 
B)  more than the discount rate. 
C)  equal to the discount rate. 
D)  acceptable. 
E)  meaningless since the return on the investment bears no relationship to the discount rate. 
A)  less than the discount rate. 
B)  more than the discount rate. 
C)  equal to the discount rate. 
D)  acceptable. 
E)  meaningless since the return on the investment bears no relationship to the discount rate.

Question 13

The _______________________ is defined as the interest rate that sets the present value of a project's cash inflows equal to the present value of the project's cost.

Accepted Answer

internal r

Question 14

Projects that do not affect the cash flows of other projects are called mutually exclusive projects.

Accepted Answer

A) True 
 B)False

Question 15

A disadvantage of the payback period is that it ignores a project's total profitability.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is true of capital investment decision making?

Accepted Answer

A)  It is used only for independent projects. 
B)  It is used only for mutually exclusive projects. 
C)  It requires that funding for a project must come from sources with the same opportunity cost of funds. 
D)  It is used to determine whether or not a firm should accept a special order. 
E)  None of these. 
A)  It is used only for independent projects. 
B)  It is used only for mutually exclusive projects. 
C)  It requires that funding for a project must come from sources with the same opportunity cost of funds. 
D)  It is used to determine whether or not a firm should accept a special order. 
E)  None of these.

Question 17

Figure 14-6.Present value of $1
   Present value of an Annuity of $1
  
-Refer to Figure 14-6. Roman Knoze is considering two investments. Each will cost $20,000 initially. Project 1 will return annual cash flows of $10,000 in each of three years. Project 2 will return $5,000 in year 1, $10,000 in year 2, and $15,000 in year 3. Roman requires a minimum rate of return of 10%. What is the net present value of Project 1? (Note: there may be a rounding error depending on the table you use to compute your answer. Choose the answer closest to the one you calculate.)

Accepted Answer

A)  $20,000 
B)  $25,670 
C)  $4,860 
D)  $22,530 
E)  $2,530 
A)  $20,000 
B)  $25,670 
C)  $4,860 
D)  $22,530 
E)  $2,530

Question 18

Figure 14-11.Present value of an Annuity of $1 in Arrears
  
-Refer to Figure 14-11. Cleves Company is considering two projects.
   Cleves requires a minimum rate of return of 8%.

Accepted Answer

The answer of Figure 14-11.Present value of an Annuity of...

Question 19

If the internal rate of return (IRR) is greater than the required rate, the project is deemed ___________.

Accepted Answer

The answer of If the internal rate of return (IRR)...

Question 20

The earning of interest on interest is

Accepted Answer

A)  present value. 
B)  future value. 
C)  discount rate. 
D)  compounding of interest. 
E)  interest earned. 
A)  present value. 
B)  future value. 
C)  discount rate. 
D)  compounding of interest. 
E)  interest earned.

A postaudit evaluates the overall outcome of the investment and proposes corrective action if needed.

Jackson Company invests in a new piece of equipment costing $40,000. The equipment is expected to yield the following amounts per year for the equipment's four-year useful life: What is the net present value of this investment in equipment?

In capital investment decision making, it is usually assumed that managers should select projects that attempt to maximize the wealth of the owners of the firm.

A series of equal future cash flows is a(n)

The internal rate of return model does not consistently result in choices that maximize firm wealth.

Match each item with the correct statement below. -can be used as a rough measure of risk and liquidity

Figure 14-9.Kenner Company is considering two projects. Present value of an Annuity of $1 in Arrears -Refer to Figure 14-9. Suppose that Kenner Company requires a minimum rate of return of 8%. Which project is better in terms of net present value?

Suppose that the actual cost of capital is 10%, but the firm chooses a discount rate of 18%. Managers of that company will be more likely to choose relatively short term investments.

Buster Evans is considering investing $20,000 in a project with the following annual cash revenues and expenses: Depreciation will be $4,000 per year. What is the accounting rate of return on the investment?

One drawback to the internal rate of return model is that cash inflows must occur evenly over the life of the investment.

If net present value is negative, it means that the return on the investment is

The _______________________ is defined as the interest rate that sets the present value of a project's cash inflows equal to the present value of the project's cost.

Projects that do not affect the cash flows of other projects are called mutually exclusive projects.

A disadvantage of the payback period is that it ignores a project's total profitability.

Which of the following is true of capital investment decision making?

Figure 14-11.Present value of an Annuity of $1 in Arrears -Refer to Figure 14-11. Cleves Company is considering two projects. Cleves requires a minimum rate of return of 8%.

If the internal rate of return (IRR) is greater than the required rate, the project is deemed ___________.

The earning of interest on interest is

Introduction to Managerial Accounting

Basic Managerial Accounting Concepts

Cost Behavior

Cost-Volume-Profit Analysis: a Managerial Planning Tool

Job-Order Costing

Process Costing

Activity-Based Costing and Management

Absorption and Variable Costing, and Inventory Management

Profit Planning

Standard Costing: a Managerial Control Tool

Flexible Budgets and Overhead Analysis

Performance Evaluation and Decentralization

Short-Run Decision Making: Relevant Costing

Statement of Cash Flows

Financial Statement Analysis

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Exam 14: Capital Investment Decisions

A postaudit evaluates the overall outcome of the investment and proposes corrective action if needed.

Jackson Company invests in a new piece of equipment costing $40,000. The equipment is expected to yield the following amounts per year for the equipment's four-year useful life: What is the net present value of this investment in equipment?

In capital investment decision making, it is usually assumed that managers should select projects that attempt to maximize the wealth of the owners of the firm.

A series of equal future cash flows is a(n)

The internal rate of return model does not consistently result in choices that maximize firm wealth.

Match each item with the correct statement below. -can be used as a rough measure of risk and liquidity

Figure 14-9.Kenner Company is considering two projects. Present value of an Annuity of $1 in Arrears -Refer to Figure 14-9. Suppose that Kenner Company requires a minimum rate of return of 8%. Which project is better in terms of net present value?

Suppose that the actual cost of capital is 10%, but the firm chooses a discount rate of 18%. Managers of that company will be more likely to choose relatively short term investments.

Buster Evans is considering investing $20,000 in a project with the following annual cash revenues and expenses: Depreciation will be $4,000 per year. What is the accounting rate of return on the investment?

One drawback to the internal rate of return model is that cash inflows must occur evenly over the life of the investment.

If net present value is negative, it means that the return on the investment is

The _______________________ is defined as the interest rate that sets the present value of a project's cash inflows equal to the present value of the project's cost.

Projects that do not affect the cash flows of other projects are called mutually exclusive projects.

A disadvantage of the payback period is that it ignores a project's total profitability.

Which of the following is true of capital investment decision making?

Figure 14-11.Present value of an Annuity of $1 in Arrears -Refer to Figure 14-11. Cleves Company is considering two projects. Cleves requires a minimum rate of return of 8%.

If the internal rate of return (IRR) is greater than the required rate, the project is deemed ___________.

The earning of interest on interest is

Introduction to Managerial Accounting

Basic Managerial Accounting Concepts

Cost Behavior

Cost-Volume-Profit Analysis: a Managerial Planning Tool

Job-Order Costing

Process Costing

Activity-Based Costing and Management

Absorption and Variable Costing, and Inventory Management

Profit Planning

Standard Costing: a Managerial Control Tool

Flexible Budgets and Overhead Analysis

Performance Evaluation and Decentralization

Short-Run Decision Making: Relevant Costing

Statement of Cash Flows

Financial Statement Analysis

Filters