Question 1

As the minimum required rate of return increases for an investment project,the net present value of the project ________.

Accepted Answer

A) increases 
B) does not change 
C) decreases 
D) becomes positive 
A) increases 
B) does not change 
C) decreases 
D) becomes positive

Question 2

A five-year MACRS asset that cost $50,000 was sold at the end of its useful life for $20,000.The book value of the asset at the time of sale was $0.The asset had no expected terminal value.The tax rate is 20%.What is the net after-tax cash inflow from the transaction?

Accepted Answer

A) $8,000 
B) $16,000 
C) $56,000 
D) $66,000 
A) $8,000 
B) $16,000 
C) $56,000 
D) $66,000

Question 3

The net present value method computes the present value of all ________ using a minimum desired rate of return.

Accepted Answer

A) expected future cash inflows 
B) expected future cash outflows 
C) expected future cash inflows and expected future cash outflows 
D) past cash inflows 
A) expected future cash inflows 
B) expected future cash outflows 
C) expected future cash inflows and expected future cash outflows 
D) past cash inflows

Question 4

If the internal rate of return on a project is less than the minimum desired rate of return,the project is not desirable.

Accepted Answer

A) True 
 B)False

Question 5

When undertaking a capital budgeting problem with taxes,the total cash effect of depreciation expense on a long-term asset is ________.

Accepted Answer

A) nonexistent 
B) indeterminate 
C) the tax savings from the depreciation expense 
D) the tax outflow from the depreciation expense 
A) nonexistent 
B) indeterminate 
C) the tax savings from the depreciation expense 
D) the tax outflow from the depreciation expense

Question 6

A deduction for depreciation expense lowers a company's tax liability.

Accepted Answer

A) True 
 B)False

Question 7

Projects that recoup their investment quickly may be less risky than those that require a longer time.

Accepted Answer

A) True 
 B)False

Question 8

An asset of $180,000 is expected to generate $90,000 in operating income annually for three years.Assume straight-line depreciation is used.The asset has no expected residual value.Ignore income taxes.The accounting rate of return based on the initial investment is ________.

Accepted Answer

A) 8.33% 
B) 16.67% 
C) 33.33% 
D) 41.67% 
A) 8.33% 
B) 16.67% 
C) 33.33% 
D) 41.67%

Question 9

Generally,the most difficult part of capital budgeting decisions is predicting accurately the relevant cash flows.

Accepted Answer

A) True 
 B)False

Question 10

If the internal rate of return on a project is ________ the required rate of return,then the project should be accepted.

Accepted Answer

A) higher than 
B) lower than 
C) the same as 
D) none of the above 
A) higher than 
B) lower than 
C) the same as 
D) none of the above

Question 11

When adjusting for inflation in a capital budgeting problem,what items should be adjusted for inflation?

Accepted Answer

A) required rate of return 
B) operating cash flows 
C) required rate of return and operating cash flows 
D) depreciation expense 
A) required rate of return 
B) operating cash flows 
C) required rate of return and operating cash flows 
D) depreciation expense

Question 12

Federal income taxes are based on the value of a company's assets.

Accepted Answer

A) True 
 B)False

Question 13

Regardless of the depreciation method used,a company will experience the same total tax savings over the life of the asset.

Accepted Answer

A) True 
 B)False

Question 14

The "break-even" cash flow for an investment project is the point at which ________.

Accepted Answer

A) the present value of the variable cost of future cash flows equals the present value of the fixed cost of future cash flows 
B) the present value of the variable cost of future cash flows equals the present value of the variable cost of past cash flows 
C) the net present value of the investment project is zero 
D) the total cash revenues equal total cash expenses 
A) the present value of the variable cost of future cash flows equals the present value of the fixed cost of future cash flows 
B) the present value of the variable cost of future cash flows equals the present value of the variable cost of past cash flows 
C) the net present value of the investment project is zero 
D) the total cash revenues equal total cash expenses

Question 15

The annual after-tax cash operating inflows of a newly purchased machine are expected to be $60,000.The expected useful life of the machine is 5 years.The after-tax minimum desired rate of return,including an inflation factor,is 25%.The inflation rate is 10% per year.What is the annual after-tax cash operating inflow for year 1 for the machine?

Accepted Answer

A) $45,000 
B) $60,000 
C) $66,000 
D) $75,000 
A) $45,000 
B) $60,000 
C) $66,000 
D) $75,000

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Discounted-cash-flow models do not focus on net income.

Accepted Answer

A) True 
 B)False

Question 18

Using the net present value method,mangers sum the present values of all expected future cash flows from the project and ________.

Accepted Answer

A) add the initial investment 
B) subtract the initial investment 
C) ignore the initial investment 
D) add the depreciation expense 
A) add the initial investment 
B) subtract the initial investment 
C) ignore the initial investment 
D) add the depreciation expense

Question 19

In capital budgeting decisions,the riskiness of a project may be shown by ________.

Accepted Answer

A) the size of the future cash inflows from the project 
B) the size of the future cash outflows from the project 
C) the timing of the cash flows from the project 
D) the project's sensitivity to changes in cash flows 
A) the size of the future cash inflows from the project 
B) the size of the future cash outflows from the project 
C) the timing of the cash flows from the project 
D) the project's sensitivity to changes in cash flows

Question 20

A company pays taxes of 25% on their first $25,000 of taxable income and 40% on any taxable income in excess of $25,000.The company's current taxable income is $30,000.What is the marginal tax rate?

Accepted Answer

A) 25% 
B) 30% 
C) 40% 
D) 65% 
A) 25% 
B) 30% 
C) 40% 
D) 65%

As the minimum required rate of return increases for an investment project,the net present value of the project ________.

A five-year MACRS asset that cost $50,000 was sold at the end of its useful life for $20,000.The book value of the asset at the time of sale was $0.The asset had no expected terminal value.The tax rate is 20%.What is the net after-tax cash inflow from the transaction?

The net present value method computes the present value of all ________ using a minimum desired rate of return.

If the internal rate of return on a project is less than the minimum desired rate of return,the project is not desirable.

When undertaking a capital budgeting problem with taxes,the total cash effect of depreciation expense on a long-term asset is ________.

A deduction for depreciation expense lowers a company's tax liability.

Projects that recoup their investment quickly may be less risky than those that require a longer time.

An asset of $180,000 is expected to generate $90,000 in operating income annually for three years.Assume straight-line depreciation is used.The asset has no expected residual value.Ignore income taxes.The accounting rate of return based on the initial investment is ________.

Generally,the most difficult part of capital budgeting decisions is predicting accurately the relevant cash flows.

If the internal rate of return on a project is ________ the required rate of return,then the project should be accepted.

When adjusting for inflation in a capital budgeting problem,what items should be adjusted for inflation?

Federal income taxes are based on the value of a company's assets.

Regardless of the depreciation method used,a company will experience the same total tax savings over the life of the asset.

The "break-even" cash flow for an investment project is the point at which ________.

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

Discounted-cash-flow models do not focus on net income.

Using the net present value method,mangers sum the present values of all expected future cash flows from the project and ________.

In capital budgeting decisions,the riskiness of a project may be shown by ________.

A company pays taxes of 25% on their first $25,000 of taxable income and 40% on any taxable income in excess of $25,000.The company's current taxable income is $30,000.What is the marginal tax rate?

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

Exam 11: Capital Budgeting

As the minimum required rate of return increases for an investment project,the net present value of the project ________.

A five-year MACRS asset that cost $50,000 was sold at the end of its useful life for $20,000.The book value of the asset at the time of sale was $0.The asset had no expected terminal value.The tax rate is 20%.What is the net after-tax cash inflow from the transaction?

The net present value method computes the present value of all ________ using a minimum desired rate of return.

If the internal rate of return on a project is less than the minimum desired rate of return,the project is not desirable.

When undertaking a capital budgeting problem with taxes,the total cash effect of depreciation expense on a long-term asset is ________.

A deduction for depreciation expense lowers a company's tax liability.

Projects that recoup their investment quickly may be less risky than those that require a longer time.

An asset of $180,000 is expected to generate $90,000 in operating income annually for three years.Assume straight-line depreciation is used.The asset has no expected residual value.Ignore income taxes.The accounting rate of return based on the initial investment is ________.

Generally,the most difficult part of capital budgeting decisions is predicting accurately the relevant cash flows.

If the internal rate of return on a project is ________ the required rate of return,then the project should be accepted.

When adjusting for inflation in a capital budgeting problem,what items should be adjusted for inflation?

Federal income taxes are based on the value of a company's assets.

Regardless of the depreciation method used,a company will experience the same total tax savings over the life of the asset.

The "break-even" cash flow for an investment project is the point at which ________.

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

Discounted-cash-flow models do not focus on net income.

Using the net present value method,mangers sum the present values of all expected future cash flows from the project and ________.

In capital budgeting decisions,the riskiness of a project may be shown by ________.

A company pays taxes of 25% on their first $25,000 of taxable income and 40% on any taxable income in excess of $25,000.The company's current taxable income is $30,000.What is the marginal tax rate?

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