Question 1

A good rule of thumb in tax planning is to recognize taxable income sooner rather than later.

Accepted Answer

A) True 
 B)False

Question 2

If a company accepts a project with a positive NPV,the project will increase the value of the firm.

Accepted Answer

A) True 
 B)False

Question 3

Because future inflation has no effect on the current purchase price of an asset,inflation can be ignored when capital-budgeting decisions are made.

Accepted Answer

A) True 
 B)False

Question 4

Vampire Company pays taxes of 15% on their first $20,000 of pretax income and 30% on any taxable income in excess of $20,000.The current pretax income is $50,000.What is the average tax rate?

Accepted Answer

A) 15% 
B) 21% 
C) 24% 
D) 30% 
A) 15% 
B) 21% 
C) 24% 
D) 30%

Question 5

In the net present value method,a reduction in a cash outflow is not treated the same way as a cash inflow.

Accepted Answer

A) True 
 B)False

Question 6

Managers who are evaluated based on the accounting rate of return model are reluctant to use ________ for capital budgeting decisions.

Accepted Answer

A) payback period model 
B) real options model 
C) discounted cash flow models 
D) return on investment model 
A) payback period model 
B) real options model 
C) discounted cash flow models 
D) return on investment model

Question 7

When using the NPV method,the higher the minimum desired rate of return,the ________ the ________ value of each future cash inflow.

Accepted Answer

A) higher; present 
B) lower; present 
C) higher; future 
D) lower: future 
A) higher; present 
B) lower; present 
C) higher; future 
D) lower: future

Question 8

In the net present value method,the world of certainty assumption means that ________.

Accepted Answer

A) the predicted cash inflows and cash outflows are certain to occur at the times specified 
B) the predicted cash inflows and cash outflows are sunk costs 
C) the predicted cash inflows and cash outflows are opportunity costs 
D) all investments are equal in value 
A) the predicted cash inflows and cash outflows are certain to occur at the times specified 
B) the predicted cash inflows and cash outflows are sunk costs 
C) the predicted cash inflows and cash outflows are opportunity costs 
D) all investments are equal in value

Question 9

When considering the cash operating inflows resulting from an investment,taxes will ________.

Accepted Answer

A) reduce the amount of the cash inflows by the tax rate 
B) reduce the amount of the cash inflows by (1 minus the tax rate) 
C) increase the amount of the cash inflows by the tax rate 
D) increase the amount of the cash inflows by (1 minus the tax rate) 
A) reduce the amount of the cash inflows by the tax rate 
B) reduce the amount of the cash inflows by (1 minus the tax rate) 
C) increase the amount of the cash inflows by the tax rate 
D) increase the amount of the cash inflows by (1 minus the tax rate)

Question 10

A five year recovery period for a long-term asset means ________.

Accepted Answer

A) the number of years it takes to recover the cost of a long-term asset 
B) the number of years a company expects to use a long-term asset 
C) the number of years a company can depreciate a long-term asset for tax purposes 
D) the number of years a long-term asset will generate future cash inflows 
A) the number of years it takes to recover the cost of a long-term asset 
B) the number of years a company expects to use a long-term asset 
C) the number of years a company can depreciate a long-term asset for tax purposes 
D) the number of years a long-term asset will generate future cash inflows

Question 11

A manager is considering the following investment:   Assume straight-line depreciation is used.Ignore income taxes.The net present value of the investment is ________.

Accepted Answer

A) $50,310 
B) $57,428 
C) $90,270 
D) $97,388 
A) $50,310 
B) $57,428 
C) $90,270 
D) $97,388

Question 12

The higher the risk of an investment project,the ________ for the project.

Accepted Answer

A) lower the minimum desired rate of return 
B) higher the minimum desired rate of return 
C) lower the expected rate of return 
D) higher the expected rate of return 
A) lower the minimum desired rate of return 
B) higher the minimum desired rate of return 
C) lower the expected rate of return 
D) higher the expected rate of return

Question 13

If the net present value of an investment project is positive,then the project is ________.If the net present value of an investment project is negative,then the project is ________.

Accepted Answer

A) ignored; accepted 
B) desirable; undesirable 
C) unacceptable; acceptable 
D) rejected; accepted 
A) ignored; accepted 
B) desirable; undesirable 
C) unacceptable; acceptable 
D) rejected; accepted

Question 14

The book value of an asset that is being replaced is a relevant cash flow in the net present value method.

Accepted Answer

A) True 
 B)False

Question 15

U.S.corporations are required to use the same method of calculating depreciation on both their income tax return and their annual financial statements.

Accepted Answer

A) True 
 B)False

Question 16

A follow-up evaluation of capital-budgeting decisions is called a post-audit.

Accepted Answer

A) True 
 B)False

Question 17

The first step in using the differential approach to investment analysis is to ________.

Accepted Answer

A) calculate the present value of the differential cash flows 
B) sum the individual present values of each investment 
C) estimate the difference in cash flows between two projects for each year 
D) identify the relevant cash inflows and cash outflows for each project 
A) calculate the present value of the differential cash flows 
B) sum the individual present values of each investment 
C) estimate the difference in cash flows between two projects for each year 
D) identify the relevant cash inflows and cash outflows for each project

Question 18

The best way to reconcile any conflict between capital budgeting models and performance evaluation is to use the ________ for both capital budgeting decisions and performance evaluation.

Accepted Answer

A) payback period model 
B) accounting rate of return model 
C) real options model 
D) discounted cash flow model 
A) payback period model 
B) accounting rate of return model 
C) real options model 
D) discounted cash flow model

Question 19

When using the net present value method,if the net present value is positive,then the ________.

Accepted Answer

A) the project should be rejected 
B) the project should be stalled 
C) the project should be reevaluated 
D) the project should be accepted 
A) the project should be rejected 
B) the project should be stalled 
C) the project should be reevaluated 
D) the project should be accepted

Question 20

The marginal tax rate for a company is the ________.

Accepted Answer

A) average tax rate for the company 
B) highest possible tax rate that may be imposed on the company by IRS 
C) lowest tax rate that may be imposed on the company by IRS 
D) tax rate paid on additional amounts of pretax income 
A) average tax rate for the company 
B) highest possible tax rate that may be imposed on the company by IRS 
C) lowest tax rate that may be imposed on the company by IRS 
D) tax rate paid on additional amounts of pretax income

A good rule of thumb in tax planning is to recognize taxable income sooner rather than later.

If a company accepts a project with a positive NPV,the project will increase the value of the firm.

Because future inflation has no effect on the current purchase price of an asset,inflation can be ignored when capital-budgeting decisions are made.

Vampire Company pays taxes of 15% on their first $20,000 of pretax income and 30% on any taxable income in excess of $20,000.The current pretax income is $50,000.What is the average tax rate?

In the net present value method,a reduction in a cash outflow is not treated the same way as a cash inflow.

Managers who are evaluated based on the accounting rate of return model are reluctant to use ________ for capital budgeting decisions.

When using the NPV method,the higher the minimum desired rate of return,the the value of each future cash inflow.

In the net present value method,the world of certainty assumption means that ________.

When considering the cash operating inflows resulting from an investment,taxes will ________.

A five year recovery period for a long-term asset means ________.

A manager is considering the following investment: Assume straight-line depreciation is used.Ignore income taxes.The net present value of the investment is ________.

The higher the risk of an investment project,the ________ for the project.

If the net present value of an investment project is positive,then the project is .If the net present value of an investment project is negative,then the project is .

The book value of an asset that is being replaced is a relevant cash flow in the net present value method.

U.S.corporations are required to use the same method of calculating depreciation on both their income tax return and their annual financial statements.

A follow-up evaluation of capital-budgeting decisions is called a post-audit.

The first step in using the differential approach to investment analysis is to ________.

The best way to reconcile any conflict between capital budgeting models and performance evaluation is to use the ________ for both capital budgeting decisions and performance evaluation.

When using the net present value method,if the net present value is positive,then the ________.

The marginal tax rate for a company is the ________.

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

A good rule of thumb in tax planning is to recognize taxable income sooner rather than later.

If a company accepts a project with a positive NPV,the project will increase the value of the firm.

Because future inflation has no effect on the current purchase price of an asset,inflation can be ignored when capital-budgeting decisions are made.

Vampire Company pays taxes of 15% on their first $20,000 of pretax income and 30% on any taxable income in excess of $20,000.The current pretax income is $50,000.What is the average tax rate?

In the net present value method,a reduction in a cash outflow is not treated the same way as a cash inflow.

Managers who are evaluated based on the accounting rate of return model are reluctant to use ________ for capital budgeting decisions.

When using the NPV method,the higher the minimum desired rate of return,the ________ the ________ value of each future cash inflow.

In the net present value method,the world of certainty assumption means that ________.

When considering the cash operating inflows resulting from an investment,taxes will ________.

A five year recovery period for a long-term asset means ________.

A manager is considering the following investment: Assume straight-line depreciation is used.Ignore income taxes.The net present value of the investment is ________.

The higher the risk of an investment project,the ________ for the project.

If the net present value of an investment project is positive,then the project is ________.If the net present value of an investment project is negative,then the project is ________.

The book value of an asset that is being replaced is a relevant cash flow in the net present value method.

U.S.corporations are required to use the same method of calculating depreciation on both their income tax return and their annual financial statements.

A follow-up evaluation of capital-budgeting decisions is called a post-audit.

The first step in using the differential approach to investment analysis is to ________.

The best way to reconcile any conflict between capital budgeting models and performance evaluation is to use the ________ for both capital budgeting decisions and performance evaluation.

When using the net present value method,if the net present value is positive,then the ________.

The marginal tax rate for a company is the ________.

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

When using the NPV method,the higher the minimum desired rate of return,the the value of each future cash inflow.

If the net present value of an investment project is positive,then the project is .If the net present value of an investment project is negative,then the project is .