Exam 16: Planning for Capital Investments

Kerwin Company is considering purchase of equipment that costs $50,000. If the useful life is expected to be 5 years and Crown's required rate of return is 12%, what is the minimum annual cash inflow that the equipment must offer for the investment to be acceptable? (Do not round your intermediate calculations. Round your final answer to the nearest dollar.)

A postaudit should be performed at the end of a capital investment project to determine whether the expected results were actually achieved.

Which of the following statements is incorrect?

The process by which management evaluates long-term investment decisions involving long term operational assets is called:

The present value of an annuity of $1 table could be constructed using the factors contained in the present value of $1 table.

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

Evergreen Company has two investment opportunities. Both investments cost $5,000 and will provide the same total future cash inflows. The cash receipt schedule for each investment is given below: Select the correct statement.

If the net present value for a capital investment is equal to zero, the internal rate of return for the investment is equal to the required rate of return.

When calculating the present value of an ordinary annuity, it is assumed that:

Which statement characterizes the time value of money concept?

Shenandoah Springs Company is considering two investment opportunities whose cash flows are provided below: The company's hurdle rate is 12%. What is the present value index of Investment B? Use Appendix Table 1. (Do not round your intermediate calculations. Round your answer to two decimal points.)

The amount of the depreciation tax shield can be calculated by multiplying the amount of depreciation expense by the tax rate.

Cash outflows from a capital investment project include:

Mr. J's Bagels invested in a new oven for $14,000. The oven reduced the amount of time for baking which increased production and sales for five years by the following amounts of cash inflows: Using the averaging method, the payback period for the investment in the oven would be:

Assuming equal time intervals between the payments and a constant rate of return, which of the following cash flow patterns represents an annuity?

The purposes of the postaudit for capital investments include all of the following except:

The future value of $1 table should be used to discount lump sum cash flows expected to occur in the future.

An investment that costs $40,000 will produce annual cash flows of $12,000 for a period of 4 years. Given a desired rate of return of 10%, what will the investment generate? Use Appendix Table 2. (Do not round your intermediate calculations. Round your answer to the nearest whole dollar.)

Capital investments differ from stock and bond investments in that stock and bond investments can be sold in organized markets.

An investment that costs $5,000 will produce annual cash flows of $2,000 for a period of 4 years. Given a desired rate of return of 8%, what is the present value index? Use Appendix Table 2. (Do not round your intermediate calculations. Round your answer to three decimal points.)