Question 1

Managers may use the payback period as a rough estimate of the riskiness of a project.

Accepted Answer

A) True 
 B)False

Question 2

Capital-budgeting decisions have significant financial effects beyond the current year.

Accepted Answer

A) True 
 B)False

Question 3

The differential approach to investments can be used to compare any number of projects.

Accepted Answer

A) True 
 B)False

Question 4

Howell Company has the following information:
   Given:
   Required:
Determine the missing amounts.Ignore income taxes.

Accepted Answer

A.$39,927 = $10,000 x 3.9927 B

Question 5

Long-term planning for making investments that require large amounts of resources is called ________.

Accepted Answer

A) operating budgeting 
B) capital budgeting 
C) strategic analysis 
D) sensitivity analysis 
A) operating budgeting 
B) capital budgeting 
C) strategic analysis 
D) sensitivity analysis

Question 6

Eiche Company is considering the purchase of equipment for $360,000.The equipment will have a ten year life with no terminal salvage value.Straight-line depreciation will be used for tax purposes.It is expected that the equipment will generate annual sales of $180,000 and annual production costs,exclusive of depreciation,of $120,000.The tax rate is 40%.What is the net annual after-tax cash flow from the equipment?

Accepted Answer

A) $14,400 cash inflow 
B) $24,000 cash inflow 
C) $36,000 cash inflow 
D) $50,400 cash inflow 
A) $14,400 cash inflow 
B) $24,000 cash inflow 
C) $36,000 cash inflow 
D) $50,400 cash inflow

Question 7

The nominal rate of interest equals the real rate of interest minus the inflation rate.

Accepted Answer

A) True 
 B)False

Question 8

The cash inflow from the disposal of a long-term asset at a gain is equal to the ________.

Accepted Answer

A) amount of the gain plus the tax paid on the gain 
B) amount of the gain 
C) selling price of asset plus the tax paid on the gain 
D) selling price of asset minus the tax paid on the gain 
A) amount of the gain plus the tax paid on the gain 
B) amount of the gain 
C) selling price of asset plus the tax paid on the gain 
D) selling price of asset minus the tax paid on the gain

Question 9

The payback model measures profitability as well as how quickly investment dollars are recouped.

Accepted Answer

A) True 
 B)False

Question 10

In the absence of taxes,depreciation expense on a long-term asset is a relevant cash flow for the NPV model.

Accepted Answer

A) True 
 B)False

Question 11

The accounting rate of return model shows the effects of an investment on a company's financial statements.

Accepted Answer

A) True 
 B)False

Question 12

Globe Company will purchase a truck for $100,000.The truck's depreciable life is 5 years.The truck has no terminal salvage value.Assume a tax rate of 30% and a required after-tax rate of return of 12%.The company uses the straight-line method of depreciation for tax purposes.What is the annual after-tax cash flow from depreciation expense?

Accepted Answer

A) $6,000 cash outflow 
B) $6,000 cash inflow 
C) $12,000 cash outflow 
D) $12,000 cash inflow 
A) $6,000 cash outflow 
B) $6,000 cash inflow 
C) $12,000 cash outflow 
D) $12,000 cash inflow

Question 13

In the NPV method,the cash outflow for the purchase of equipment is an example of an operating cash flow.

Accepted Answer

A) True 
 B)False

Question 14

An investment of $180,000 is expected to generate $100,000 in cost savings annually for three years.Assume straight-line depreciation is used.Ignore income taxes.What is the payback period?

Accepted Answer

A) 0.80 years 
B) 1.80 years 
C) 1.88 years 
D) 3.00 years 
A) 0.80 years 
B) 1.80 years 
C) 1.88 years 
D) 3.00 years

Question 15

In net present value analysis,a reduction in a future cash outflow is treated as ________.

Accepted Answer

A) an irrelevant cash flow 
B) a cash inflow 
C) a disposal value of a long-term asset 
D) an expense 
A) an irrelevant cash flow 
B) a cash inflow 
C) a disposal value of a long-term asset 
D) an expense

Question 16

The IRR model determines the interest rate at which the NPV of an investment equals zero.

Accepted Answer

A) True 
 B)False

Question 17

Two common methods for comparing alternative investments are the total project approach and the conversion approach.

Accepted Answer

A) True 
 B)False

Question 18

One purpose of a post-audit is to provide information for improving future predictions of cash flows.

Accepted Answer

A) True 
 B)False

Question 19

Williams Company is considering the purchase of equipment for $360,000.The equipment will have a ten year life with no terminal salvage value.Straight-line depreciation will be used for tax purposes.It is expected that the equipment will generate annual sales of $180,000 and annual production costs,exclusive of depreciation,of $120,000.The tax rate is 40%.What is the annual after-tax cash flow from the depreciation expense?

Accepted Answer

A) $14,400 cash inflow 
B) $24,000 cash inflow 
C) $48,000 cash inflow 
D) Zero.There is no cash flow with depreciation. 
A) $14,400 cash inflow 
B) $24,000 cash inflow 
C) $48,000 cash inflow 
D) Zero.There is no cash flow with depreciation.

Question 20

Kobe Company will purchase a van for $50,000.The van's depreciable life is 5 years.The van has no terminal salvage value.Assume a tax rate of 30% and a required after-tax rate of return of 12%.The company uses the straight-line method of depreciation for tax purposes.What is the annual after-tax cash flow from depreciation expense?

Accepted Answer

A) $3,000 cash outflow 
B) $3,000 cash inflow 
C) $6,000 cash outflow 
D) $6,000 cash inflow 
A) $3,000 cash outflow 
B) $3,000 cash inflow 
C) $6,000 cash outflow 
D) $6,000 cash inflow

Managers may use the payback period as a rough estimate of the riskiness of a project.

Capital-budgeting decisions have significant financial effects beyond the current year.

The differential approach to investments can be used to compare any number of projects.

Howell Company has the following information: Given: Required: Determine the missing amounts.Ignore income taxes.

Long-term planning for making investments that require large amounts of resources is called ________.

The nominal rate of interest equals the real rate of interest minus the inflation rate.

The cash inflow from the disposal of a long-term asset at a gain is equal to the ________.

The payback model measures profitability as well as how quickly investment dollars are recouped.

In the absence of taxes,depreciation expense on a long-term asset is a relevant cash flow for the NPV model.

The accounting rate of return model shows the effects of an investment on a company's financial statements.

In the NPV method,the cash outflow for the purchase of equipment is an example of an operating cash flow.

An investment of $180,000 is expected to generate $100,000 in cost savings annually for three years.Assume straight-line depreciation is used.Ignore income taxes.What is the payback period?

In net present value analysis,a reduction in a future cash outflow is treated as ________.

The IRR model determines the interest rate at which the NPV of an investment equals zero.

Two common methods for comparing alternative investments are the total project approach and the conversion approach.

One purpose of a post-audit is to provide information for improving future predictions of cash flows.

Managerial Accounting, the Business Organization

Introduction to Cost Behavior and Cost-Volume Relationships

Measurement of Cost Behavior

Cost Management Systems and Activity-Based Costing

Relevant Information for Decision Making With a Focus

Relevant Information for Decision Making With a Focus

Introduction to Budgets and Preparing the Master Budget

Flexible Budgets and Variance Analysis

Management Control Systems and Responsibility Accounting

Management Control in Decentralized Organizations

Cost Allocation

Accounting for Overhead Costs

Job-Order Costing and Process-Costing Systems

Basic Accounting: Concepts, techniques, and Conventions

Understanding Corporate Annual Reports: Basic Financial Statements

Understanding and Analyzing Consolidated Financial Statements

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Exam 11: Capital Budgeting

Managers may use the payback period as a rough estimate of the riskiness of a project.

Capital-budgeting decisions have significant financial effects beyond the current year.

The differential approach to investments can be used to compare any number of projects.

Howell Company has the following information: Given: Required: Determine the missing amounts.Ignore income taxes.

Long-term planning for making investments that require large amounts of resources is called ________.

The nominal rate of interest equals the real rate of interest minus the inflation rate.

The cash inflow from the disposal of a long-term asset at a gain is equal to the ________.

The payback model measures profitability as well as how quickly investment dollars are recouped.

In the absence of taxes,depreciation expense on a long-term asset is a relevant cash flow for the NPV model.

The accounting rate of return model shows the effects of an investment on a company's financial statements.

In the NPV method,the cash outflow for the purchase of equipment is an example of an operating cash flow.

An investment of $180,000 is expected to generate $100,000 in cost savings annually for three years.Assume straight-line depreciation is used.Ignore income taxes.What is the payback period?

In net present value analysis,a reduction in a future cash outflow is treated as ________.

The IRR model determines the interest rate at which the NPV of an investment equals zero.

Two common methods for comparing alternative investments are the total project approach and the conversion approach.

One purpose of a post-audit is to provide information for improving future predictions of cash flows.

Managerial Accounting, the Business Organization

Introduction to Cost Behavior and Cost-Volume Relationships

Measurement of Cost Behavior

Cost Management Systems and Activity-Based Costing

Relevant Information for Decision Making With a Focus

Relevant Information for Decision Making With a Focus

Introduction to Budgets and Preparing the Master Budget

Flexible Budgets and Variance Analysis

Management Control Systems and Responsibility Accounting

Management Control in Decentralized Organizations

Cost Allocation

Accounting for Overhead Costs

Job-Order Costing and Process-Costing Systems

Basic Accounting: Concepts, techniques, and Conventions

Understanding Corporate Annual Reports: Basic Financial Statements

Understanding and Analyzing Consolidated Financial Statements

Filters