Question 1

When choosing among competing projects, the ___________________ model correctly identifies the best investment alternative.

Accepted Answer

The answer of When choosing among competing projects, the ___________________...

Question 2

Net present value analysis and internal rate of return analysis can sometimes produce erroneous choices because they ignore the time value of money.

Accepted Answer

A) True 
 B)False

Question 3

A firm is considering a project with an annual cash flow of $200,000. The project would have a seven year life, and the company uses a discount rate of 10%. What is the maximum amount the company could invest in the project and have the project still be acceptable?

Accepted Answer

A)  $718,200 
B)  $1,400,000 
C)  $973,600 
D)  $200,000 
A)  $718,200 
B)  $1,400,000 
C)  $973,600 
D)  $200,000

Question 4

Figure 14-10.Present value of $1
   Present value of an Annuity of $1
  
-Refer to Figure 14-10. Geary Company is considering an investment costing $110,000. The investment would return $40,000 per year in each of three years. Geary requires a minimum rate of return of 10%.

Accepted Answer

The answer of Figure 14-10.Present value of $1
  ...

Question 5

Figure 14-3.Davis Company is considering the purchase of a new piece of equipment that will cost $1,600,000 and have a life of five years with no expected salvage value. The expected cash flows associated with the project are as follows:
  
-Refer to Figure 14-3. What is the accounting rate of return for the project?

Accepted Answer

A)  83.33% 
B)  31.25% 
C)  47.00% 
D)  37.50% 
E)  43.75% 
A)  83.33% 
B)  31.25% 
C)  47.00% 
D)  37.50% 
E)  43.75%

Question 6

Mistral Manufacturing is considering an investment in a new, high-efficient machine. The new machine requires an initial investment of $1,750,000. The new system cash flows of either:
a. Even cash flows of $350,000 per year or
b. The following expected annual cash flows: $275,000, $420,000, $820,000, $470,000, and $150,000
Required: Calculate the payback period for each case.

Accepted Answer

The answer of Mistral Manufacturing is considering an investment in...

Question 7

To make a capital investment decision, a manager must estimate the

Accepted Answer

A)  quantity of cash flows. 
B)  timing of cash flows. 
C)  risk of the investment. 
D)  impact of the investment on the firm's profitability. 
E)  All of these. 
A)  quantity of cash flows. 
B)  timing of cash flows. 
C)  risk of the investment. 
D)  impact of the investment on the firm's profitability. 
E)  All of these.

Question 8

Figure 14-1.A company is considering two projects.  
-Refer to Figure 14-1. What is the payback period for Project I?

Accepted Answer

A)  1 year 
B)  3 years 
C)  2.5 years 
D)  3.5 years 
E)  5 years 
A)  1 year 
B)  3 years 
C)  2.5 years 
D)  3.5 years 
E)  5 years

Question 9

Figure 14-10.Present value of $1
   Present value of an Annuity of $1
  
-Refer to Figure 14-10. Jimmy Reynolds is considering investing $12,000 in a project with the following cash revenues and expenses:
   Jimmy requires a minimum rate of return of 8%.

Accepted Answer

The answer of Figure 14-10.Present value of $1
  ...

Question 10

Figure 14-6.Present value of $1
   Present value of an Annuity of $1
  
-Refer to Figure 14-6. Jan Rigby is considering an investment that will cost $20,000 initially, and return annual cash flows of $10,000 in each of three years. Jan requires a minimum rate of return of 8%. What is the present value of the cash inflows? (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)  $25,770 
B)  $20,000 
C)  $5,770 
D)  $45,770 
E)  $10,000 
A)  $25,770 
B)  $20,000 
C)  $5,770 
D)  $45,770 
E)  $10,000

Question 11

The internal audit staff is usually the best choice for performing a postaudit of a capital investment.

Accepted Answer

A) True 
 B)False

Question 12

Shoring Company is considering a project with an internal rate of return of 14.5%. Shoring requires a minimum rate of return of 12%. The net present value of the project is

Accepted Answer

A)  negative. 
B)  infinite. 
C)  equal to zero. 
D)  positive. 
E)  None of these. 
A)  negative. 
B)  infinite. 
C)  equal to zero. 
D)  positive. 
E)  None of these.

Question 13

In general terms, a sound capital investment will earn

Accepted Answer

A)  back its original capital outlay. 
B)  a return greater than existing capital investments. 
C)  back its original capital outlay and provide a reasonable return on the original investment. 
D)  back its original capital outlay by the midpoint of its useful life. 
E)  None of these. 
A)  back its original capital outlay. 
B)  a return greater than existing capital investments. 
C)  back its original capital outlay and provide a reasonable return on the original investment. 
D)  back its original capital outlay by the midpoint of its useful life. 
E)  None of these.

Question 14

The best model for choosing the best of several competing projects is

Accepted Answer

A)  net present value. 
B)  internal rate of return. 
C)  payback period. 
D)  accounting rate of return. 
E)  None of these. 
A)  net present value. 
B)  internal rate of return. 
C)  payback period. 
D)  accounting rate of return. 
E)  None of these.

Question 15

Figure 14-5.Sara Turner is considering investing $60,000 in a project with the following cash revenues and expenses:
  
-Refer to Figure 14-5. What is the accounting rate of return for the project?

Accepted Answer

A)  8.67% 
B)  15.60% 
C)  7.50% 
D)  3.10% 
E)  Cannot be calculated with this information. 
A)  8.67% 
B)  15.60% 
C)  7.50% 
D)  3.10% 
E)  Cannot be calculated with this information.

Question 16

When investing in automated systems, which of the following intangible or indirect benefits may be important?

Accepted Answer

A)  improved customer satisfaction 
B)  improved market share 
C)  reduced support labor cost 
D)  reduced lead time 
E)  All of these. 
A)  improved customer satisfaction 
B)  improved market share 
C)  reduced support labor cost 
D)  reduced lead time 
E)  All of these.

Question 17

Carol Harrison is considering an investment in a retail shopping mall. The initial investment is $400,000. She expects to receive cash income of $80,000 a year. What is the payback period?

Accepted Answer

A)  4 year 
B)  3.5 years 
C)  5 years 
D)  2.5 years 
E)  6 years 
A)  4 year 
B)  3.5 years 
C)  5 years 
D)  2.5 years 
E)  6 years

Question 18

The minimum acceptable rate of return for a project is the required rate of return.

Accepted Answer

A) True 
 B)False

Question 19

Match each item with the correct statement below.
-is the best method discounting model to use for mutually exclusive competing projects

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 20

Tessa Wilson invested in a project with a payback period of 6 years. The project brings $18,000 per year for a period of 9 years. What was the initial investment?

Accepted Answer

A)  $108,000 
B)  $107,500 
C)  $162,000 
D)  $240,000 
E)  Cannot be determined from this information. 
A)  $108,000 
B)  $107,500 
C)  $162,000 
D)  $240,000 
E)  Cannot be determined from this information.

When choosing among competing projects, the ___________________ model correctly identifies the best investment alternative.

Net present value analysis and internal rate of return analysis can sometimes produce erroneous choices because they ignore the time value of money.

A firm is considering a project with an annual cash flow of $200,000. The project would have a seven year life, and the company uses a discount rate of 10%. What is the maximum amount the company could invest in the project and have the project still be acceptable?

Figure 14-10.Present value of $1 Present value of an Annuity of $1 -Refer to Figure 14-10. Geary Company is considering an investment costing $110,000. The investment would return $40,000 per year in each of three years. Geary requires a minimum rate of return of 10%.

To make a capital investment decision, a manager must estimate the

Figure 14-1.A company is considering two projects. -Refer to Figure 14-1. What is the payback period for Project I?

Figure 14-10.Present value of $1 Present value of an Annuity of $1 -Refer to Figure 14-10. Jimmy Reynolds is considering investing $12,000 in a project with the following cash revenues and expenses: Jimmy requires a minimum rate of return of 8%.

The internal audit staff is usually the best choice for performing a postaudit of a capital investment.

Shoring Company is considering a project with an internal rate of return of 14.5%. Shoring requires a minimum rate of return of 12%. The net present value of the project is

In general terms, a sound capital investment will earn

The best model for choosing the best of several competing projects is

Figure 14-5.Sara Turner is considering investing $60,000 in a project with the following cash revenues and expenses: -Refer to Figure 14-5. What is the accounting rate of return for the project?

When investing in automated systems, which of the following intangible or indirect benefits may be important?

Carol Harrison is considering an investment in a retail shopping mall. The initial investment is $400,000. She expects to receive cash income of $80,000 a year. What is the payback period?

The minimum acceptable rate of return for a project is the required rate of return.

Match each item with the correct statement below. -is the best method discounting model to use for mutually exclusive competing projects

Tessa Wilson invested in a project with a payback period of 6 years. The project brings $18,000 per year for a period of 9 years. What was the initial investment?

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

When choosing among competing projects, the ___________________ model correctly identifies the best investment alternative.

Net present value analysis and internal rate of return analysis can sometimes produce erroneous choices because they ignore the time value of money.

A firm is considering a project with an annual cash flow of $200,000. The project would have a seven year life, and the company uses a discount rate of 10%. What is the maximum amount the company could invest in the project and have the project still be acceptable?

Figure 14-10.Present value of $1 Present value of an Annuity of $1 -Refer to Figure 14-10. Geary Company is considering an investment costing $110,000. The investment would return $40,000 per year in each of three years. Geary requires a minimum rate of return of 10%.

To make a capital investment decision, a manager must estimate the

Figure 14-1.A company is considering two projects. -Refer to Figure 14-1. What is the payback period for Project I?

Figure 14-10.Present value of $1 Present value of an Annuity of $1 -Refer to Figure 14-10. Jimmy Reynolds is considering investing $12,000 in a project with the following cash revenues and expenses: Jimmy requires a minimum rate of return of 8%.

The internal audit staff is usually the best choice for performing a postaudit of a capital investment.

Shoring Company is considering a project with an internal rate of return of 14.5%. Shoring requires a minimum rate of return of 12%. The net present value of the project is

In general terms, a sound capital investment will earn

The best model for choosing the best of several competing projects is

Figure 14-5.Sara Turner is considering investing $60,000 in a project with the following cash revenues and expenses: -Refer to Figure 14-5. What is the accounting rate of return for the project?

When investing in automated systems, which of the following intangible or indirect benefits may be important?

Carol Harrison is considering an investment in a retail shopping mall. The initial investment is $400,000. She expects to receive cash income of $80,000 a year. What is the payback period?

The minimum acceptable rate of return for a project is the required rate of return.

Match each item with the correct statement below. -is the best method discounting model to use for mutually exclusive competing projects

Tessa Wilson invested in a project with a payback period of 6 years. The project brings $18,000 per year for a period of 9 years. What was the initial investment?

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