Exam 16: Planning for Capital Investments

Weston Company is considering a capital project that delivers a $50,000 annual net cash flow before tax. The investment will result in annual depreciation expense of $10,000 over the project's four-year useful life. Assuming a tax rate of 40%, what amount of annual after-tax net cash flow will be provided by this project?

Paul Company is considering purchasing a capital investment that is expected to provide annual cash inflows of $12,000 per year for 3 years. Assuming that the required rate of return is 10%, what is the present value of these cash inflows? Use Appendix Table 2. (Do not round PV factors and intermediate calculations. Round your final answer to the nearest dollar.)

Which of the following is not a criterion that is used to determine whether a project is acceptable under the net present value method?

Which one of the following statements best describes an ordinary annuity?

The time value of money concept recognizes that a dollar today is worth more than a dollar tomorrow. Which of the following is not a factor in causing the present value of cash inflows to diminish over time?

A capital investment with an internal rate of return equal to or greater than the required rate of return is considered to be an acceptable investment.

Findell Corporation is considering two projects, A and B, and it has gathered the following estimates for the projects: What is the net present value of cash flows for project B?

The time value of money concept recognizes the fact that the present value of a dollar to be received in the future is worth more than a dollar.

Select the incorrect statement regarding postaudits of capital investment decisions.

Which of the following statements describes the cost of capital?

What amount of cash would result at the end of one year, if $15,000 is invested today and the rate of return is 8%?

Fenwick Company is considering purchase of equipment that costs $60,000 and is expected to offer annual cash inflows of $16,645 for 5 years. Fenwick Company's required rate of return is 10%. The internal rate of return of this investment project is closest to:

Matt needs to compute the present value of $5,000 to be received four years from now. He should multiply $5,000 by the appropriate present value interest factor obtained from the present value of $1 table.

An annuity is a series of equal payments over equal time intervals that earn a constant rate of return.

The payback method of evaluating capital investments measures the recovery of the investment, but it does not measure profitability.

An investment that cost $30,000 provided annual cash inflows of $9,000 per year for five years. The desired rate of return is 10%. What is the internal rate of return from the investment?

Capital investment decisions involve investments in current assets.

Joan Osborne is evaluating a potential capital investment. She has calculated the net present value using a minimum rate of return of 10%. Using this rate, the net present value is negative. What does this tell her about the rate of return expected for the project?

A cash flow that only occurs in equal amounts each year is referred to as:

Cash outflows can be categorized into all of the following groups except: