Question 1

The net present value for this investment is:

Accepted Answer

A) positive $150,000. 
B) negative $24,170. 
C) positive $24,170. 
D) negative $150,000. 
A) positive $150,000. 
B) negative $24,170. 
C) positive $24,170. 
D) negative $150,000.

Question 2

Using the following partial table of present value of $1 at compound interest,compute the present value of $20,000 (rounded to nearest dollar)to be received one year from today,assuming an earnings rate of 15%.

Accepted Answer

A) $17,400 
B) $17,000 
C) $20,000 
D) $15,451 
A) $17,400 
B) $17,000 
C) $20,000 
D) $15,451

Question 3

The present value index for this investment is:

Accepted Answer

A) 1.00. 
B) 0.95. 
C) 1.25. 
D) 1.05. 
A) 1.00. 
B) 0.95. 
C) 1.25. 
D) 1.05.

Question 4

If the rate of earnings is 12% and the cash to be received in two years is $20,000,determine the present value amount,using the following partial table of present value of $1 at compound interest.

Accepted Answer

A) $16,520 
B) $15,940 
C) $14,240 
D) $17,860 
A) $16,520 
B) $15,940 
C) $14,240 
D) $17,860

Question 5

The anticipated purchase of a fixed asset for $400,000,with a useful life of 5 years and no residual value,is expected to yield total net income of $300,000 for 5 years.The expected average rate of return is 30%.

Accepted Answer

A) True 
 B)False

Question 6

The computations required for the net present value method are more than the computation required for the average rate of return method.

Accepted Answer

A) True 
 B)False

Question 7

The net present value has been computed for Proposals A and B.Relevant data are as follows:

Accepted Answer

The answer of The net present value has been computed...

Question 8

The cash payback period for this investment is:

Accepted Answer

A) 3 years. 
B) 5 years. 
C) 20 years. 
D) 4 years. 
A) 3 years. 
B) 5 years. 
C) 20 years. 
D) 4 years.

Question 9

In general,present value methods of analyzing capital investments are more desirable than methods ignoring present values because:

Accepted Answer

A) the calculations in methods that ignore present value are more complex than those in methods using present value. 
B) the present value methods consider that a dollar today is worth more than a dollar in the future due to the potential earning power of that dollar. 
C) the calculations in methods that consider present value are less complex than those methods ignoring present value. 
D) the present value methods consider that a dollar in the future is worth more than a dollar today due to the potential earning power of that dollar. 
A) the calculations in methods that ignore present value are more complex than those in methods using present value. 
B) the present value methods consider that a dollar today is worth more than a dollar in the future due to the potential earning power of that dollar. 
C) the calculations in methods that consider present value are less complex than those methods ignoring present value. 
D) the present value methods consider that a dollar in the future is worth more than a dollar today due to the potential earning power of that dollar.

Question 10

The process by which management plans,evaluates,and controls long-term investment decisions involving fixed assets is called capital investment analysis.

Accepted Answer

A) True 
 B)False

Question 11

Decisions to install new equipment,replace old equipment,and purchase or construct a new building are examples of:

Accepted Answer

A) sales mix analysis. 
B) variable cost analysis. 
C) cost-volume-profit analysis. 
D) capital investment analysis. 
A) sales mix analysis. 
B) variable cost analysis. 
C) cost-volume-profit analysis. 
D) capital investment analysis.

Question 12

Which method of evaluating capital investment proposals uses the concept of present value to compute a rate of return?

Accepted Answer

A) Average rate of return 
B) Internal rate of return 
C) Cash payback period 
D) Accounting rate of return 
A) Average rate of return 
B) Internal rate of return 
C) Cash payback period 
D) Accounting rate of return

Question 13

The methods of evaluating capital investment proposals can be grouped into two general categories: (1)average rate of return method and (2)cash payback method.

Accepted Answer

A) True 
 B)False

Question 14

The anticipated purchase of a fixed asset for $400,000 with a useful life of 5 years and no residual value is expected to yield total income of $150,000 (recognition is given to the effect of straight-line depreciation on the investment).The expected average rate of return is 15%.

Accepted Answer

A) True 
 B)False

Question 15

The process by which management plans,evaluates,and controls long-term investment decisions involving fixed assets is called:

Accepted Answer

A) absorption cost analysis. 
B) variable cost analysis. 
C) capital investment analysis. 
D) cost-volume-profit analysis. 
A) absorption cost analysis. 
B) variable cost analysis. 
C) capital investment analysis. 
D) cost-volume-profit analysis.

Question 16

The computations required for the net present value method are less than those the computation required for the average rate of return method.

Accepted Answer

A) True 
 B)False

Question 17

Mars Corp.is choosing between two different capital investment proposals.Machine A has a useful life of 4 years,and Machine B has a useful life of 6 years.Each proposal requires an initial investment of $200,000,and the company desires a rate of return of 10%.Although Machine B has a useful life of 6 years,it could be sold at the end of 4 years for $35,000.

Accepted Answer

A) Mars should invest in Machine A because the net present value of Machine A after 4 years is higher than the net present value of Machine B after 4 years. 
B) Mars should invest in Machine B because the net present value of Machine A after 4 years is lower and the net present value of Machine B after 6 years. 
C) Mars should invest in Machine B because the net present value of Machine A after 4 years is lower than the net present value of Machine B after 4 years. 
D) Mars should invest in Machine A because the net present value of Machine A after 4 years is higher than the net present value of Machine B after 6 years. 
A) Mars should invest in Machine A because the net present value of Machine A after 4 years is higher than the net present value of Machine B after 4 years. 
B) Mars should invest in Machine B because the net present value of Machine A after 4 years is lower and the net present value of Machine B after 6 years. 
C) Mars should invest in Machine B because the net present value of Machine A after 4 years is lower than the net present value of Machine B after 4 years. 
D) Mars should invest in Machine A because the net present value of Machine A after 4 years is higher than the net present value of Machine B after 6 years.

Question 18

An analysis of a proposal by the net present value method indicated that the present value exceeded the amount to be invested.Which of the following statements best describes the results of this analysis?

Accepted Answer

A) The proposal is desirable and the rate of return expected from the proposal exceeds the minimum rate used for the analysis. 
B) The proposal is desirable and the rate of return expected from the proposal is less than the minimum rate used for the analysis. 
C) The proposal is undesirable and the rate of return expected from the proposal is less than the minimum rate used for the analysis. 
D) The proposal is undesirable and the rate of return expected from the proposal exceeds the minimum rate used for the analysis. 
A) The proposal is desirable and the rate of return expected from the proposal exceeds the minimum rate used for the analysis. 
B) The proposal is desirable and the rate of return expected from the proposal is less than the minimum rate used for the analysis. 
C) The proposal is undesirable and the rate of return expected from the proposal is less than the minimum rate used for the analysis. 
D) The proposal is undesirable and the rate of return expected from the proposal exceeds the minimum rate used for the analysis.

Question 19

Care must be taken while making capital investment decisions since it involves a long-term commitment of funds and affects operations for several years.

Accepted Answer

A) True 
 B)False

Question 20

The expected period of time that will elapse between the date of a capital investment and the complete recovery in cash of the amount invested is called the discount period.

Accepted Answer

A) True 
 B)False

The net present value for this investment is:

Using the following partial table of present value of $1 at compound interest,compute the present value of $20,000 (rounded to nearest dollar)to be received one year from today,assuming an earnings rate of 15%.

The present value index for this investment is:

If the rate of earnings is 12% and the cash to be received in two years is $20,000,determine the present value amount,using the following partial table of present value of $1 at compound interest.

The anticipated purchase of a fixed asset for $400,000,with a useful life of 5 years and no residual value,is expected to yield total net income of $300,000 for 5 years.The expected average rate of return is 30%.

The computations required for the net present value method are more than the computation required for the average rate of return method.

The net present value has been computed for Proposals A and B.Relevant data are as follows:

The cash payback period for this investment is:

In general,present value methods of analyzing capital investments are more desirable than methods ignoring present values because:

The process by which management plans,evaluates,and controls long-term investment decisions involving fixed assets is called capital investment analysis.

Decisions to install new equipment,replace old equipment,and purchase or construct a new building are examples of:

Which method of evaluating capital investment proposals uses the concept of present value to compute a rate of return?

The methods of evaluating capital investment proposals can be grouped into two general categories: (1)average rate of return method and (2)cash payback method.

The anticipated purchase of a fixed asset for $400,000 with a useful life of 5 years and no residual value is expected to yield total income of $150,000 (recognition is given to the effect of straight-line depreciation on the investment).The expected average rate of return is 15%.

The process by which management plans,evaluates,and controls long-term investment decisions involving fixed assets is called:

The computations required for the net present value method are less than those the computation required for the average rate of return method.

An analysis of a proposal by the net present value method indicated that the present value exceeded the amount to be invested.Which of the following statements best describes the results of this analysis?

Care must be taken while making capital investment decisions since it involves a long-term commitment of funds and affects operations for several years.

The expected period of time that will elapse between the date of a capital investment and the complete recovery in cash of the amount invested is called the discount period.

The Role of Accounting in Business

Basic Accounting Concepts

Accrual Accounting Concepts

Accounting for Merchandising Businesses

Sarbanes-Oxley, internal Control, and Cash

Receivables and Inventories

Fixed Assets and Intangible Assets

Liabilities and Stockholders Equity

Financial Statement Analysis

Accounting Systems for Manufacturing Businesses

Cost Behavior and Cost-Volume-Profit Analysis

Differential Analysis and Product Pricing

Budgeting and Standard Cost Systems

Performance Evaluation for Decentralized Operations

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Exam 15: Capital Investment Analysis

The net present value for this investment is:

Using the following partial table of present value of $1 at compound interest,compute the present value of $20,000 (rounded to nearest dollar)to be received one year from today,assuming an earnings rate of 15%.

The present value index for this investment is:

If the rate of earnings is 12% and the cash to be received in two years is $20,000,determine the present value amount,using the following partial table of present value of $1 at compound interest.

The anticipated purchase of a fixed asset for $400,000,with a useful life of 5 years and no residual value,is expected to yield total net income of $300,000 for 5 years.The expected average rate of return is 30%.

The computations required for the net present value method are more than the computation required for the average rate of return method.

The net present value has been computed for Proposals A and B.Relevant data are as follows:

The cash payback period for this investment is:

In general,present value methods of analyzing capital investments are more desirable than methods ignoring present values because:

The process by which management plans,evaluates,and controls long-term investment decisions involving fixed assets is called capital investment analysis.

Decisions to install new equipment,replace old equipment,and purchase or construct a new building are examples of:

Which method of evaluating capital investment proposals uses the concept of present value to compute a rate of return?

The methods of evaluating capital investment proposals can be grouped into two general categories: (1)average rate of return method and (2)cash payback method.

The anticipated purchase of a fixed asset for $400,000 with a useful life of 5 years and no residual value is expected to yield total income of $150,000 (recognition is given to the effect of straight-line depreciation on the investment).The expected average rate of return is 15%.

The process by which management plans,evaluates,and controls long-term investment decisions involving fixed assets is called:

The computations required for the net present value method are less than those the computation required for the average rate of return method.

An analysis of a proposal by the net present value method indicated that the present value exceeded the amount to be invested.Which of the following statements best describes the results of this analysis?

Care must be taken while making capital investment decisions since it involves a long-term commitment of funds and affects operations for several years.

The expected period of time that will elapse between the date of a capital investment and the complete recovery in cash of the amount invested is called the discount period.

The Role of Accounting in Business

Basic Accounting Concepts

Accrual Accounting Concepts

Accounting for Merchandising Businesses

Sarbanes-Oxley, internal Control, and Cash

Receivables and Inventories

Fixed Assets and Intangible Assets

Liabilities and Stockholders Equity

Financial Statement Analysis

Accounting Systems for Manufacturing Businesses

Cost Behavior and Cost-Volume-Profit Analysis

Differential Analysis and Product Pricing

Budgeting and Standard Cost Systems

Performance Evaluation for Decentralized Operations

Filters