Question 1

If the accounting rate of return exceeds the required accounting rate of return,

Accepted Answer

A) invest in the capital asset. 
B) do not invest in the capital asset. 
C) only invest if the payback period is also greater than the required rate of return. 
D) only invest if the payback period is also less than the required rate of return. 
A) invest in the capital asset. 
B) do not invest in the capital asset. 
C) only invest if the payback period is also greater than the required rate of return. 
D) only invest if the payback period is also less than the required rate of return.

Question 2

O'Mally Department Stores is considering two possible expansion plans.One proposal involves opening 5 stores in Indiana at the cost of $1,920,000.Under the other proposal,the company would focus on Kentucky and open 6 stores at a cost of $2,500,000.The following information is available:
 
The payback period for the Indiana proposal is closest to

Accepted Answer

A) 3.8 years. 
B) 5.0 years. 
C) 4.8 years. 
D) 38.4 years. 
A) 3.8 years. 
B) 5.0 years. 
C) 4.8 years. 
D) 38.4 years.

Question 3

The internal rate of return is used as the discount rate when calculating the net present value of a project.

Accepted Answer

A) True 
 B)False

Question 4

The present value of $1,000,000 received in 13 years,given an interest rate of 3%,is

Accepted Answer

A) $681,000. 
B) $661,000. 
C) $1,469,000. 
D) $10,635,000. 
A) $681,000. 
B) $661,000. 
C) $1,469,000. 
D) $10,635,000.

Question 5

What will happen to the net present value (NPV)of a project if the discount rate is increased from 8% to 10%?

Accepted Answer

A) NPV will always decrease. 
B) NPV will always increase. 
C) The discount rate change will not affect NPV. 
D) We cannot determine the direction of the effect on NPV from the information provided. 
A) NPV will always decrease. 
B) NPV will always increase. 
C) The discount rate change will not affect NPV. 
D) We cannot determine the direction of the effect on NPV from the information provided.

Question 6

When selecting a capital investment project from three alternatives,the project with the highest net present value will always be preferable.

Accepted Answer

A) True 
 B)False

Question 7

The ________ capital budgeting model considers both profitability and the time value of money.

Accepted Answer

A) payback 
B) net present value 
C) accounting rate of return 
D) Both a and c are correct 
A) payback 
B) net present value 
C) accounting rate of return 
D) Both a and c are correct

Question 8

Gomez Corporation is considering two alternative investment proposals with the following data:
 
What is the accounting rate of return for Proposal Y?

Accepted Answer

A) 5.24% 
B) 4.17% 
C) 29.17% 
D) 16.67% 
A) 5.24% 
B) 4.17% 
C) 29.17% 
D) 16.67%

Question 9

(Present value tables are needed. )The Janus Vending Machine Company is looking to expand its business by adding a new line of vending machines.The management team is considering expanding into either soda machines or snack machines.Following is the relevant financial data relating to the decision:
 
What is the net present value for the snack machines?

Accepted Answer

A) $(65,220) 
B) $104,920 
C) $54,920 
D) $86,920 
A) $(65,220) 
B) $104,920 
C) $54,920 
D) $86,920

Question 10

The ARR is the only method that uses accrual accounting figures and thus making it important to financial statement users.

Accepted Answer

A) True 
 B)False

Question 11

You recently won a contest sponsored by a local radio station.The radio station will pay you $2,500 at the end of each of the next 15 years.Assuming an interest rate of 3%,what is the present value of this prize?

Accepted Answer

A) $46,498 
B) $29,845 
C) $28,240 
D) $42,715 
A) $46,498 
B) $29,845 
C) $28,240 
D) $42,715

Question 12

(Present value tables are needed. )Cleveland Cove Enterprises is evaluating the purchase of an elaborate hydraulic lift system for all of its locations to use for the boats brought in for repair.The company has narrowed their choices down to two: the B14 Model and the F54 Model.Financial data about the two choices follows.
 
Using the net present value model,which alternative should the company select?

Accepted Answer

A) Neither investment should be selected. 
B) The F54 Model should be selected. 
C) Both investments should be selected. 
D) The B14 Model should be selected. 
A) Neither investment should be selected. 
B) The F54 Model should be selected. 
C) Both investments should be selected. 
D) The B14 Model should be selected.

Question 13

Gomez Corporation is considering two alternative investment proposals with the following data:
 
How long is the payback period for Proposal Y?

Accepted Answer

A) 21.25 years 
B) 6.00 years 
C) 6.80 years 
D) 11.70 years 
A) 21.25 years 
B) 6.00 years 
C) 6.80 years 
D) 11.70 years

Question 14

(Present value tables required)If you invest $1,200 at the end of every year for five years at an interest rate of 10%,the balance of your investment in 5 years will be closest to

Accepted Answer

A) $1,933. 
B) $6,000. 
C) $7,326. 
D) $4,549. 
A) $1,933. 
B) $6,000. 
C) $7,326. 
D) $4,549.

Question 15

One advantage of the internal rate of return is that it considers the time value of money.

Accepted Answer

A) True 
 B)False

Question 16

(Present value tables are needed. )Cleveland Cove Enterprises is evaluating the purchase of an elaborate hydraulic lift system for all of its locations to use for the boats brought in for repair.The company has narrowed their choices down to two: the B14 Model and the F54 Model.Financial data about the two choices follows.
 
What is the total present value of future cash inflows and residual value from the B14 Model?

Accepted Answer

A) $15,260 
B) $335,260 
C) $383,980 
D) $191,395 
A) $15,260 
B) $335,260 
C) $383,980 
D) $191,395

Question 17

(Present value tables are needed. )O'Mally Department Stores is considering two possible expansion plans.One proposal involves opening 5 stores in Indiana at the cost of $1,920,000.Under the other proposal,the company would focus on Kentucky and open 6 stores at a cost of $2,500,000.The following information is available:
 
The net present value of the Kentucky proposal is closest to

Accepted Answer

A) $557,300. 
B) $572,500. 
C) $603,380. 
D) $684,600. 
A) $557,300. 
B) $572,500. 
C) $603,380. 
D) $684,600.

Question 18

(Present value tables are required. )Karpets Industries is investing in a new high-speed loom for weaving its rugs and carpets.The new loom will have a useful life of 7 years and cost $80,000.The loom's residual value is $5,000.Assume that Karpets requires a return of 10% and that the loom will create annual cost savings of $16,250.What is the net present value (NPV)of the new loom?

Accepted Answer

A) $1,670 
B) ($3,460) 
C) $81,670 
D) ($895) 
A) $1,670 
B) ($3,460) 
C) $81,670 
D) ($895)

Question 19

The net present value method assumes that the cash inflows from a project are immediately reinvested at the

Accepted Answer

A) internal rate of return. 
B) accounting rate of return. 
C) market rate of return. 
D) required rate of return. 
A) internal rate of return. 
B) accounting rate of return. 
C) market rate of return. 
D) required rate of return.

Question 20

The "rate of return that makes the NPV of a capital project equal to zero" is best described by which of the following terms?

Accepted Answer

A) Accounting rate of return 
B) Internal rate of return 
C) Discount rate 
D) Net present value 
A) Accounting rate of return 
B) Internal rate of return 
C) Discount rate 
D) Net present value

If the accounting rate of return exceeds the required accounting rate of return,

The internal rate of return is used as the discount rate when calculating the net present value of a project.

The present value of $1,000,000 received in 13 years,given an interest rate of 3%,is

What will happen to the net present value (NPV)of a project if the discount rate is increased from 8% to 10%?

When selecting a capital investment project from three alternatives,the project with the highest net present value will always be preferable.

The ________ capital budgeting model considers both profitability and the time value of money.

Gomez Corporation is considering two alternative investment proposals with the following data: What is the accounting rate of return for Proposal Y?

The ARR is the only method that uses accrual accounting figures and thus making it important to financial statement users.

You recently won a contest sponsored by a local radio station.The radio station will pay you $2,500 at the end of each of the next 15 years.Assuming an interest rate of 3%,what is the present value of this prize?

Gomez Corporation is considering two alternative investment proposals with the following data: How long is the payback period for Proposal Y?

(Present value tables required)If you invest $1,200 at the end of every year for five years at an interest rate of 10%,the balance of your investment in 5 years will be closest to

One advantage of the internal rate of return is that it considers the time value of money.

The net present value method assumes that the cash inflows from a project are immediately reinvested at the

The "rate of return that makes the NPV of a capital project equal to zero" is best described by which of the following terms?

Introduction to Managerial Accounting

Building Blocks of Managerial Accounting

Job Costing

Activity-Based Costing, lean Operations, and the Costs of Quality

Process Costing

Cost Behavior

Cost-Volume-Profit Analysis

Relevant Costs for Short-Term Decisions

The Master Budget

Performance Evaluation

Standard Costs and Variances

Statement of Cash Flows

Financial Statement Analysis

Sustainability

Filters

Exam 12: Capital Investment Decisions and the Time Value of Money

If the accounting rate of return exceeds the required accounting rate of return,

The internal rate of return is used as the discount rate when calculating the net present value of a project.

The present value of $1,000,000 received in 13 years,given an interest rate of 3%,is

What will happen to the net present value (NPV)of a project if the discount rate is increased from 8% to 10%?

When selecting a capital investment project from three alternatives,the project with the highest net present value will always be preferable.

The ________ capital budgeting model considers both profitability and the time value of money.

Gomez Corporation is considering two alternative investment proposals with the following data: What is the accounting rate of return for Proposal Y?

The ARR is the only method that uses accrual accounting figures and thus making it important to financial statement users.

You recently won a contest sponsored by a local radio station.The radio station will pay you $2,500 at the end of each of the next 15 years.Assuming an interest rate of 3%,what is the present value of this prize?

Gomez Corporation is considering two alternative investment proposals with the following data: How long is the payback period for Proposal Y?

(Present value tables required)If you invest $1,200 at the end of every year for five years at an interest rate of 10%,the balance of your investment in 5 years will be closest to

One advantage of the internal rate of return is that it considers the time value of money.

The net present value method assumes that the cash inflows from a project are immediately reinvested at the

The "rate of return that makes the NPV of a capital project equal to zero" is best described by which of the following terms?

Introduction to Managerial Accounting

Building Blocks of Managerial Accounting

Job Costing

Activity-Based Costing, lean Operations, and the Costs of Quality

Process Costing

Cost Behavior

Cost-Volume-Profit Analysis

Relevant Costs for Short-Term Decisions

The Master Budget

Performance Evaluation

Standard Costs and Variances

Statement of Cash Flows

Financial Statement Analysis

Sustainability

Filters