Exam 10: Capital Budgeting Decisions

A capital investment project requires an investment of $200,000. It has an expected life of 5 years with annual cash flows of $50,000 received at the end of each year. a. Compute the payback period for the project. b. Determine the accounting rate of return for the project based on the initial capital investment. c. Compute the internal rate of return for the project. d. Compute the net present value of the project using a 6% discount rate.

Any capital budgeting model that explicitly considers the time value of money in identifying criteria for accepting or rejecting proposed projects.

The present value of $10,000 to be received 5 years from now and earning an annual return of 8 percent is

Which of the following statements about depreciation is TRUE?

Below are two potential investment alternatives: -Assume straight-line amortization in all computations, and ignore income taxes. The net present value in case B is

Below are two potential investment alternatives: Assume straight-line amortization in all computations, and ignore income taxes. -The payback period in case A is

The difference between the present value of a project's cash inflows and the present value of its cash outflows.

A capital investment project requires an investment of $50,000 and has an expected life of four years. Annual cash flows at the end of each year are expected to be as follows: a. Compute the payback period assuming that the cash flows occur evenly throughout the year. b. Determine the accounting rate of return for the project based on the initial investment. c. Compute the net present value of the project using a 10% discount rate. (Round amounts to dollars.)

Which of the following statements about depreciation is TRUE?

Another term for market interest rate is

Alpha Company has the following information: -What is (c)?

The annual income statement of ZAP Inc. shows the following items: Required: Compute the following amounts (ignore present value considerations): a. Net after-tax accounting income b. Total net after-tax cash inflow from operations

The time required for a project to return its investment.

Alpha Company has the following information: -What is (e)?

Which of the following methods determines the interest rate which equates the present value of the future cash flows with the investment outlay?

Below are two potential investment alternatives: -Assume straight-line amortization in all computations, and ignore income taxes. The internal rate of return in case Y is approximately

Below are two potential investment alternatives: Assume straight-line amortization in all computations, and ignore income taxes. -The marginal tax rate is

Use the following information regarding a production asset to answer the next question(s). -The tax savings from the capital cost allowance in the second year would be

Projects that, if accepted, preclude the acceptance of competing projects.

Which of the following is NOT usually considered when a company establishes its minimum desired rate of return?