Exam 14: Capital Investment Decisions

The process of planning, setting goals and priorities, arranging financing, and using certain criteria to select long-term assets is called capital investment decisions.

The internal rate of return is the most widely used of the capital investment techniques.

The ______________ is the time required for a firm to recover its original investment.

______________________ are projects that, if accepted or rejected, do not affect the cash flows of other projects.

Which of the following is not a benefit of postaudits of capital investments?

Figure 14-6.Present value of $1 Present value of an Annuity of $1 -Refer to Figure 14-6. Morgan Clinical Practice is considering an investment in new imaging equipment that will cost $400,000. The equipment is expected to yield cash inflows of $80,000 per year for a six year period. At the end of the sixth year, the firm expects to recover $150,000 from the sale of the equipment. Morgan set a required rate of return at 10%. What is the net present value of the investment? (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.)

Figure 14-10.Present value of $1 Present value of an Annuity of $1 -Refer to Figure 14-10. Jasmine Company is considering an investment costing $20,000. The investment would return $8,000 per year in each of three years. Jasmine requires a minimum rate of return of 6%.

Match each item with the correct statement below. -a series of equal future cash flows

Which of the following is a disadvantage of postaudits?

_____________________ explicitly consider the time value of money.

Before-tax cash flows must be forecasted and used in capital investment decision making.

Elizabeth Myers invested in a project that required an initial amount of $1,560, and returned one cash inflow of $12,000 at the end of the 18th year. A partial table of the present value of an annuity of $1 in arrears is as follows: What is the internal rate of return for this investment?

The _________________________ measures the return on a project in terms of income.

Managers may use the accounting rate of return to evaluate potential investment projects because

Which model of capital investment decision making is most widely used? Why?

Brenning Company invested $3,000,000 in a new computer system. The following is the net income stream: Required: Calculate the accounting rate of return.

A disadvantage of postaudits is that they are costly.

Which of the following provides an absolute dollar measure?

The capital investment decision making model that assumes that each cash inflow is reinvested at the required rate of return is

The value of an investment at the end of its life is called its ________________.