Question 1

Which of these costs would not be relevant to an investment decision to replace an existing asset with a newer model capable of increasing production?

Accepted Answer

A) Disposal value of existing asset. 
B) Future operating costs of existing asset. 
C) Trade-in value of existing asset. 
D) Carrying amount of asset to be replaced. 
A) Disposal value of existing asset. 
B) Future operating costs of existing asset. 
C) Trade-in value of existing asset. 
D) Carrying amount of asset to be replaced.

Question 2

Use the information below to answer the following questions.
Y3 Ltd is expanding its production of binoculars. The plant is expected to cost $750,000, have a life of 5 years, and a nil residual value. It will be ready for operation on 31 December 2017. The following statement of comprehensive income figures for the new binoculars are forecast: $\begin{array}{llllll}&2018 & 2019 & 2020 & 2021 & 2022 \
&\$ \mathrm{~m} & \$ \mathrm{~m} & \$ \mathrm{~m} & \$ \mathrm{~m} & \$ \mathrm{~m}\
\text { Sales } & 1.5 & 1.3 & 1.4 & 1.2 & 1.1 \
\text { Costs (including depreciation) } & 1.0 & 1.0 & 1.0 & 1.0 & 1.0 \
\hline \text { Profit before tax } & \underline{0.5} & 0.3 & 0.4 & 0.2 & 0.1
\end{array}$ Depreciation has been calculated on a straightline basis. You should assume that all cash flows occur at the end of the year in which they arise. The company's cost of capital is 10%. Ignore taxation.
-Refer to the table above. The annual cash outflow for the project is:

Accepted Answer

A) $700,000. 
B) $850,000. 
C) $750,000. 
D) $650,000. 
A) $700,000. 
B) $850,000. 
C) $750,000. 
D) $650,000.

Question 3

The following information relates to three mutually exclusive projects. $\begin{array}{rrrr}& \text { Project } A & \text { Project } B & \text { Project C } \
\text { Initial cash outlay } & \$ 40,000 & \$ 40,000 & \$ 40,000\
\text { Net cash inflows: }\
year1 & 3,000 & 16,000 & 12,000 \
2 & 7,000 & 13,000 & 12,000 \
3 & 11,000 & 10,000 & 12,000 \
4 & 15,000 & 7,000 & 12,000 \
5 & 19,000 & 4,000 & 12,000\
\text { Salvage value Year } 5&8,000 & \text { Nil } & 2,000
\end{array}$ REQUIRED: 
$\text { Compute the net present value of each project at a discount rate of } 10 \% \text {. }$

Accepted Answer

None

Question 4

Courtmaster provides superturf for tennis courts. The company has recently investigated investing in a new machine, which will speed up the laying of the superturf. The old machine has a remaining life of 5 years, and the new equipment has a value of $150,000 with a five-year life. The expected additional cash inflows are $35,000 per year. In what range is the internal rate of return for the new machine?

Accepted Answer

A) 4 - 6%. 
B) 2 - 4%. 
C) 6 - 8%. 
D) 8 - 10%. 
A) 4 - 6%. 
B) 2 - 4%. 
C) 6 - 8%. 
D) 8 - 10%.

Question 5

What is the decision rule for the payback method of investment appraisal?

Accepted Answer

A) choose the project with the longest payback period. 
B) choose the project with the shortest payback period. 
C) choose the project where the payback period is longer than a hurdle period. 
D) below a maximum period, accept the project with the shortest payback period. 
A) choose the project with the longest payback period. 
B) choose the project with the shortest payback period. 
C) choose the project where the payback period is longer than a hurdle period. 
D) below a maximum period, accept the project with the shortest payback period.

Question 6

The finding from surveys of the methods of business investments that is true is:

Accepted Answer

A) businesses generally only use one method to assess each investment decision. 
B) there is a tendency for larger businesses to use the discounting methods. 
C) the payback method is hardly used in practice. 
D) All of the statements are true. 
A) businesses generally only use one method to assess each investment decision. 
B) there is a tendency for larger businesses to use the discounting methods. 
C) the payback method is hardly used in practice. 
D) All of the statements are true.

Question 7

If the Net Present Value of a project is $1,000 after using a discount rate of 8%, then one can conclude that the Internal Rate of Return is:

Accepted Answer

A) greater than 8%. 
B) 8%. 
C) between 8% and 10%. 
D) less than 8%. 
A) greater than 8%. 
B) 8%. 
C) between 8% and 10%. 
D) less than 8%.

Question 8

An advantage of the Internal Rate of Return method over the Net Present Value method of investment appraisal is that:

Accepted Answer

A) the IRR is easier to calculate than the NPV. 
B) the IRR method is more well known that the NPV method. 
C) the IRR is expressed in percentage terms whereas the NPV is expressed in absolute terms. 
D) all are advantages. 
A) the IRR is easier to calculate than the NPV. 
B) the IRR method is more well known that the NPV method. 
C) the IRR is expressed in percentage terms whereas the NPV is expressed in absolute terms. 
D) all are advantages.

Which of these costs would not be relevant to an investment decision to replace an existing asset with a newer model capable of increasing production?

What is the decision rule for the payback method of investment appraisal?

The finding from surveys of the methods of business investments that is true is:

If the Net Present Value of a project is $1,000 after using a discount rate of 8%, then one can conclude that the Internal Rate of Return is:

An advantage of the Internal Rate of Return method over the Net Present Value method of investment appraisal is that:

Introduction to Accounting

Measuring and Reporting Financial Position

Measuring and Reporting Financial Performance

Introduction to Limited Companies

Regulatory Framework for Companies

Measuring and Reporting Cash Flows

Corporate Social Responsibility and Sustainability Accounting

Analysis and Interpretation of Financial Statements

Cost-Volume-Profit Analysis and Relevant Costing

Full Costing

Budgeting

The Management of Working Capital

Financing the Business

Filters

Exam 12: Capital Investment Decisions

Which of these costs would not be relevant to an investment decision to replace an existing asset with a newer model capable of increasing production?

What is the decision rule for the payback method of investment appraisal?

The finding from surveys of the methods of business investments that is true is:

If the Net Present Value of a project is $1,000 after using a discount rate of 8%, then one can conclude that the Internal Rate of Return is:

An advantage of the Internal Rate of Return method over the Net Present Value method of investment appraisal is that:

Introduction to Accounting

Measuring and Reporting Financial Position

Measuring and Reporting Financial Performance

Introduction to Limited Companies

Regulatory Framework for Companies

Measuring and Reporting Cash Flows

Corporate Social Responsibility and Sustainability Accounting

Analysis and Interpretation of Financial Statements

Cost-Volume-Profit Analysis and Relevant Costing

Full Costing

Budgeting

The Management of Working Capital

Financing the Business

Filters