Question 1

A postaudit is an analysis of a capital project before it is implemented.

Accepted Answer

A) True 
 B)False

Question 2

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 average annual income for this project?

Accepted Answer

A)  $900,000 
B)  $1,500,000 
C)  $600,000 
D)  $700,000 
E)  $300,000 
A)  $900,000 
B)  $1,500,000 
C)  $600,000 
D)  $700,000 
E)  $300,000

Question 3

Oakland Shop is considering the purchase of a used printing press costing $9,600. The printing press would generate a net cash inflow of $4,000 per year for three years. At the end of three years, the press would have no salvage value. The company's cost of capital is 10%. The company uses straight-line depreciation with no mid-year convention. What is the accounting rate of return on the original investment in the press to the nearest percent, assuming no taxes are paid?

Accepted Answer

A)  41.67% 
B)  8.33% 
C)  75.00% 
D)  10.00% 
A)  41.67% 
B)  8.33% 
C)  75.00% 
D)  10.00%

Question 4

Figure 14-9.Kenner Company is considering two projects.   Present value of an Annuity of $1 in Arrears
  
-Refer to Figure 14-9. Which of the two projects, A or B, is better in terms of internal rate of return?

Accepted Answer

A)  project A with an IRR of 12% 
B)  project B with an IRR of 14% 
C)  project A with an IRR of 10% 
D)  project B with an IRR of 10% 
E)  both projects have the same IRR 
A)  project A with an IRR of 12% 
B)  project B with an IRR of 14% 
C)  project A with an IRR of 10% 
D)  project B with an IRR of 10% 
E)  both projects have the same IRR

Question 5

If cash flows are uneven, the payback period assumes that the inflows during the last fraction of a year occur evenly.

Accepted Answer

A) True 
 B)False

Question 6

The payback period provides information to managers that can be used to help

Accepted Answer

A)  control the risks associated with the uncertainty of future cash flows. 
B)  minimize the impact of an investment on a firm's liquidity problems. 
C)  control the risk of obsolescence. 
D)  control the effect of the investment on performance measures. 
E)  All of these. 
A)  control the risks associated with the uncertainty of future cash flows. 
B)  minimize the impact of an investment on a firm's liquidity problems. 
C)  control the risk of obsolescence. 
D)  control the effect of the investment on performance measures. 
E)  All of these.

Question 7

Match each item with the correct statement below.
-assumes that all future cash inflows earn the minimum rate of return

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

Which of the following is true regarding the internal rate of return for a project?

Accepted Answer

A)  If the internal rate of return is less than the required rate of return, the project will be rejected. 
B)  If the internal rate of return is equal to the required rate of return, the net present value of the project is zero. 
C)  If the internal rate of return is more than the required rate of return, the project will be accepted. 
D)  Managers may believe (in most cases, incorrectly) that the internal rate of return is the compounded rate of return earned by the initial investment. 
E)  All of these. 
A)  If the internal rate of return is less than the required rate of return, the project will be rejected. 
B)  If the internal rate of return is equal to the required rate of return, the net present value of the project is zero. 
C)  If the internal rate of return is more than the required rate of return, the project will be accepted. 
D)  Managers may believe (in most cases, incorrectly) that the internal rate of return is the compounded rate of return earned by the initial investment. 
E)  All of these.

Question 9

Figure 14-10.Present value of $1
   Present value of an Annuity of $1
  
-Refer to Figure 14-10. A company is considering two modifications to its current manufacturing process. The after-tax cash flows associated with the two investments are:
   The company's cost of capital is 12%.

Accepted Answer

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

Question 10

A firm is considering a project requiring an investment of $27,000. The project would generate an annual cash flow of $6,296 for the next seven years. The company uses the straight-line method of depreciation. The approximate internal rate of return for the project is

Accepted Answer

A)  6%. 
B)  8%. 
C)  12%. 
D)  14%. 
A)  6%. 
B)  8%. 
C)  12%. 
D)  14%.

Question 11

Neil Morrison has just invested $130,000 in a restaurant. He expects to receive income of $24,000 a year, and to have the investment for 8 years. What is the accounting rate of return?

Accepted Answer

A)  5.60% 
B)  18.46% 
C)  14.52% 
D)  12.41% 
E)  4.50% 
A)  5.60% 
B)  18.46% 
C)  14.52% 
D)  12.41% 
E)  4.50%

Question 12

The ___________________ is the minimum acceptable rate of return.

Accepted Answer

required rate of ret

A postaudit is an analysis of a capital project before it is implemented.

Figure 14-9.Kenner Company is considering two projects. Present value of an Annuity of $1 in Arrears -Refer to Figure 14-9. Which of the two projects, A or B, is better in terms of internal rate of return?

If cash flows are uneven, the payback period assumes that the inflows during the last fraction of a year occur evenly.

The payback period provides information to managers that can be used to help

Match each item with the correct statement below. -assumes that all future cash inflows earn the minimum rate of return

Which of the following is true regarding the internal rate of return for a project?

Figure 14-10.Present value of $1 Present value of an Annuity of $1 -Refer to Figure 14-10. A company is considering two modifications to its current manufacturing process. The after-tax cash flows associated with the two investments are: The company's cost of capital is 12%.

A firm is considering a project requiring an investment of $27,000. The project would generate an annual cash flow of $6,296 for the next seven years. The company uses the straight-line method of depreciation. The approximate internal rate of return for the project is

Neil Morrison has just invested $130,000 in a restaurant. He expects to receive income of $24,000 a year, and to have the investment for 8 years. What is the accounting rate of return?

The ___________________ is the minimum acceptable rate of return.

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

Exam 14: Capital Investment Decisions

A postaudit is an analysis of a capital project before it is implemented.

Figure 14-9.Kenner Company is considering two projects. Present value of an Annuity of $1 in Arrears -Refer to Figure 14-9. Which of the two projects, A or B, is better in terms of internal rate of return?

If cash flows are uneven, the payback period assumes that the inflows during the last fraction of a year occur evenly.

The payback period provides information to managers that can be used to help

Match each item with the correct statement below. -assumes that all future cash inflows earn the minimum rate of return

Which of the following is true regarding the internal rate of return for a project?

Figure 14-10.Present value of $1 Present value of an Annuity of $1 -Refer to Figure 14-10. A company is considering two modifications to its current manufacturing process. The after-tax cash flows associated with the two investments are: The company's cost of capital is 12%.

A firm is considering a project requiring an investment of $27,000. The project would generate an annual cash flow of $6,296 for the next seven years. The company uses the straight-line method of depreciation. The approximate internal rate of return for the project is

Neil Morrison has just invested $130,000 in a restaurant. He expects to receive income of $24,000 a year, and to have the investment for 8 years. What is the accounting rate of return?

The ___________________ is the minimum acceptable rate of return.

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