Question 1

Self-check-in machines at airports are an example of capital assets.

Accepted Answer

A) True 
 B)False

Question 2

The net present value method assumes that all cash inflows are immediately reinvested at a rate of return equal to the internal rate of return.

Accepted Answer

A) True 
 B)False

Question 3

A series of equal payments or deposits made at equal time intervals are called compound interest.

Accepted Answer

A) True 
 B)False

Question 4

The accounting rate of return is a measure of profitability computed by dividing the average annual operating income from an asset by the initial amount invested in the asset.

Accepted Answer

A) True 
 B)False

Question 5

Your wealthy neighbor has promised to give you $3000 a year at the end of each of the next four years to help with college. Using a discount rate of 4%, the present value of the gift can be stated as

Accepted Answer

A) PV = $3000 (PV factor, i = 2%, n = 4). 
B) PV = $3000 × 4% × 5. 
C) PV = $3000 (Annuity FV factor, i = 4%, n = 4). 
D) PV = $3000 (Annuity PV factor, i = 4%, n = 4). 
A) PV = $3000 (PV factor, i = 2%, n = 4). 
B) PV = $3000 × 4% × 5. 
C) PV = $3000 (Annuity FV factor, i = 4%, n = 4). 
D) PV = $3000 (Annuity PV factor, i = 4%, n = 4).

Question 6

Lenardi Corporation is evaluating the purchase of a new machine that would have an initial cost of $110,000. This new machine would have a profitability index of 2.50. The company's discount rate is 15%. What is the present value of the net cash inflows of the new machine project?

Accepted Answer

A) $16,500 
B) $275,000 
C) $44,000 
D) $733,333 
A) $16,500 
B) $275,000 
C) $44,000 
D) $733,333

Question 7

Cleveland Cove Enterprises is evaluating the purchase of an elaborate hydraulic lift system for all of its locations to use for the boats brought in for repair. The company has narrowed their choices down to two: the B14 Model and the F54 Model. Financial data about the two choices follows.   What is the total present value of future cash inflows and residual value from the B14 Model?
Present Value of $1
  Present Value of Annuity of $1

Accepted Answer

A) $85,200 
B) $385,200 
C) $420,000 
D) $131,949 
A) $85,200 
B) $385,200 
C) $420,000 
D) $131,949

Question 8

Net present value and the internal rate of return are examples of discounted cash flow models used in capital budgeting decisions.

Accepted Answer

A) True 
 B)False

Question 9

Sunny Days Corporation is deciding whether to automate one phase of its production process. The equipment has a six-year life and will cost $300,000. Projected net cash inflows from the equipment are as follows:   Sunny Days Corporation's hurdle rate is 10%.
If Sunny Days Corporation decides to refurbish the equipment at a cost of $70,000 at the end of year 6, it could be used for one more year and would have a $50,000 residual value at the end of year 7. Assume the cash inflow in year 7 is $80,000. What is the NPV of just the refurbishment?
Present Value of $1
  Present Value of Annuity of $1

Accepted Answer

A) $(1560) 
B) $27,210 
C) $20,000 
D) $66,690 
A) $(1560) 
B) $27,210 
C) $20,000 
D) $66,690

Question 10

Assuming an interest rate of 14%, the present value of $30,000 to be received 8 years from now would be closest to: Present Value of $1
  Present Value of Annuity of $1

Accepted Answer

A) $10,530. 
B) $33,600. 
C) $30,000. 
D) $139,170. 
A) $10,530. 
B) $33,600. 
C) $30,000. 
D) $139,170.

Question 11

One advantage of the internal rate of return is that it considers the time value of money.

Accepted Answer

A) True 
 B)False

Question 12

The present value of an investment is affected by all of the following except?

Accepted Answer

A) The interest rate 
B) The number of time periods (length of the investment) 
C) The type of investment (annuity versus lump sum) 
D) The value of a past investment 
A) The interest rate 
B) The number of time periods (length of the investment) 
C) The type of investment (annuity versus lump sum) 
D) The value of a past investment

Question 13

The Pantry Vending Machine Company is looking to expand its business by adding a new line of vending machines. The management team is considering expanding into either soda machines or snack machines. Following is the relevant financial data relating to the decision:   What is the total present value of future cash inflows from the soda machines and residual value?
Present Value of $1
  Present Value of Annuity of $1

Accepted Answer

A) $132,000 
B) $134,180 
C) $93,330 
D) $165,330 
A) $132,000 
B) $134,180 
C) $93,330 
D) $165,330

Question 14

Velocity Tire Company's managerial accountant assesses the net present value of two different types of tread repair machines in order to ascertain the better investment option. The Retreadit-2000 will require an investment of $320,000 while the Econ-4760 will require an investment of $280,000. Each piece of equipment has a useful life of 10 years with no residual value. The Retreadit-2000 annual net cash inflow has a static value of $72,000 annually whereas the Econ-4760 has a static cash inflow predicted at $49,500. The revenue generated by the chosen product will be invested in an annuity at 12%, compute the net present value of the two pieces of equipment and state which will be the better investment according to their respective NPVs.
Present Value of $1
   Present Value of Annuity of $1

Accepted Answer

Retreadit-2000 = $86

Question 15

The Crystal Company uses straight-line depreciation and is considering a capital expenditure for which the following relevant cash flow data have been estimated:   Total net inflows during the useful life of the asset are

Accepted Answer

A) $450,000. 
B) $350,000. 
C) $630,000. 
D) $230,000. 
A) $450,000. 
B) $350,000. 
C) $630,000. 
D) $230,000.

Question 16

Coyne Corporation is evaluating a capital investment opportunity. This project would require an initial investment of $36,000 to purchase equipment. The equipment will have a residual value at the end of its life of $5000. The useful life of the equipment is 4 years. The new project is expected to generate additional net cash inflows of $19,000 per year for each of the four years. Coyne's required rate of return is 10%. The net present value of this project is closest to: Present Value of $1
  Present Value of Annuity of $1

Accepted Answer

A) $39,057. 
B) $27,645. 
C) $24,230. 
D) $10,941. 
A) $39,057. 
B) $27,645. 
C) $24,230. 
D) $10,941.

Question 17

One disadvantage of the payback method is that it does not consider the time value of money.

Accepted Answer

A) True 
 B)False

Question 18

The "rate of return that makes the NPV of a capital project equal to zero" is best described by which of the following terms?

Accepted Answer

A) Accounting rate of return 
B) Internal rate of return 
C) Discount rate 
D) Net present value 
A) Accounting rate of return 
B) Internal rate of return 
C) Discount rate 
D) Net present value

Question 19

Oceanview Manufacturing is considering an investment that would require an initial net investment of $660,000. The following revenues/expenses relate exclusively to the investment:   The investment will have a residual value of $50,000 at the end of its 12 year useful life. What is the payback period for this investment?

Accepted Answer

A) 1)78 years 
B) 3)07 years 
C) 2)59 years 
D) 2)24 years 
A) 1)78 years 
B) 3)07 years 
C) 2)59 years 
D) 2)24 years

Question 20

The process of making capital investment decisions is referred to as capital budgeting.

Accepted Answer

A) True 
 B)False

Self-check-in machines at airports are an example of capital assets.

The net present value method assumes that all cash inflows are immediately reinvested at a rate of return equal to the internal rate of return.

A series of equal payments or deposits made at equal time intervals are called compound interest.

The accounting rate of return is a measure of profitability computed by dividing the average annual operating income from an asset by the initial amount invested in the asset.

Your wealthy neighbor has promised to give you $3000 a year at the end of each of the next four years to help with college. Using a discount rate of 4%, the present value of the gift can be stated as

Lenardi Corporation is evaluating the purchase of a new machine that would have an initial cost of $110,000. This new machine would have a profitability index of 2.50. The company's discount rate is 15%. What is the present value of the net cash inflows of the new machine project?

Net present value and the internal rate of return are examples of discounted cash flow models used in capital budgeting decisions.

Assuming an interest rate of 14%, the present value of $30,000 to be received 8 years from now would be closest to: Present Value of $1 Present Value of Annuity of $1

One advantage of the internal rate of return is that it considers the time value of money.

The present value of an investment is affected by all of the following except?

The Crystal Company uses straight-line depreciation and is considering a capital expenditure for which the following relevant cash flow data have been estimated: Total net inflows during the useful life of the asset are

One disadvantage of the payback method is that it does not consider the time value of money.

The "rate of return that makes the NPV of a capital project equal to zero" is best described by which of the following terms?

The process of making capital investment decisions is referred to as capital budgeting.

Introduction to Managerial Accounting

Building Blocks of Managerial Accounting

Job Costing

Activity-Based Costing, Lean Operations, and the Costs of Quality

Process Costing

Cost Behavior

Cost-Volume-Profit Analysis

Relevant Costs for Short-Term Decisions

The Master Budget

Performance Evalulation

Standard Costs and Variances

Statement of Cash Flows

Financial Statement Analysis

Sustainability

Filters

Exam 12: Capital Investment Decisions and the Time Value of Money

Self-check-in machines at airports are an example of capital assets.

The net present value method assumes that all cash inflows are immediately reinvested at a rate of return equal to the internal rate of return.

A series of equal payments or deposits made at equal time intervals are called compound interest.

The accounting rate of return is a measure of profitability computed by dividing the average annual operating income from an asset by the initial amount invested in the asset.

Your wealthy neighbor has promised to give you $3000 a year at the end of each of the next four years to help with college. Using a discount rate of 4%, the present value of the gift can be stated as

Lenardi Corporation is evaluating the purchase of a new machine that would have an initial cost of $110,000. This new machine would have a profitability index of 2.50. The company's discount rate is 15%. What is the present value of the net cash inflows of the new machine project?

Net present value and the internal rate of return are examples of discounted cash flow models used in capital budgeting decisions.

Assuming an interest rate of 14%, the present value of $30,000 to be received 8 years from now would be closest to: Present Value of $1 Present Value of Annuity of $1

One advantage of the internal rate of return is that it considers the time value of money.

The present value of an investment is affected by all of the following except?

The Crystal Company uses straight-line depreciation and is considering a capital expenditure for which the following relevant cash flow data have been estimated: Total net inflows during the useful life of the asset are

One disadvantage of the payback method is that it does not consider the time value of money.

The "rate of return that makes the NPV of a capital project equal to zero" is best described by which of the following terms?

The process of making capital investment decisions is referred to as capital budgeting.

Introduction to Managerial Accounting

Building Blocks of Managerial Accounting

Job Costing

Activity-Based Costing, Lean Operations, and the Costs of Quality

Process Costing

Cost Behavior

Cost-Volume-Profit Analysis

Relevant Costs for Short-Term Decisions

The Master Budget

Performance Evalulation

Standard Costs and Variances

Statement of Cash Flows

Financial Statement Analysis

Sustainability

Filters