Question 1

Which of the following is used as the equation's denominator when computing the accounting rate of return for a capital asset?

Accepted Answer

A) Initial investment amount 
B) Average annual operating income from the asset 
C) Total amount invested in the asset 
D) Average net cash flows from the asset 
A) Initial investment amount 
B) Average annual operating income from the asset 
C) Total amount invested in the asset 
D) Average net cash flows from the asset

Question 2

Louise owns a golf course and wants to add some computers to the lounge. The computers would cost $14,000 and would have a 3 year life and no residual value. Louise expects the computers to generate $4,000 annual cash inflows for 3 years. The discount rate is 8%. What is the net present value of the investment?
Present Value of Annuity of $1
   Present Value of $1

Accepted Answer

($4,000 ×

Question 3

What is an attribute of the internal rate of return?

Accepted Answer

A) It is the interest rate that makes the NPV of the investment equal to zero. 
B) It is the interest rate that makes the cost of the investment equal to the present value of the investment's net cash inflows. 
C) It is used in the capital rationing process. 
D) All of the above are attributes of the internal rate of return. 
A) It is the interest rate that makes the NPV of the investment equal to zero. 
B) It is the interest rate that makes the cost of the investment equal to the present value of the investment's net cash inflows. 
C) It is used in the capital rationing process. 
D) All of the above are attributes of the internal rate of return.

Question 4

The ARR allows managers to compare the present value of future cash generated by a project against the cost of investing in that project.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following areas does not make significant use of time value of money concepts?

Accepted Answer

A) Capital investment analysis 
B) Lending and borrowing 
C) Personal finance planning 
D) Marketing research 
A) Capital investment analysis 
B) Lending and borrowing 
C) Personal finance planning 
D) Marketing research

Question 6

The internal rate of return is used as the discount rate when calculating the net present value of a project.

Accepted Answer

A) True 
 B)False

Question 7

Redwood Corporation is considering two alternative investment proposals with the following data:   How long is the payback period for Proposal Y?

Accepted Answer

A) 13.27 years 
B) 7)59 years 
C) 6)67 years 
D) 7)68 years 
A) 13.27 years 
B) 7)59 years 
C) 6)67 years 
D) 7)68 years

Question 8

Companies may only use one capital budgeting method because they are all very costly to perform.

Accepted Answer

A) True 
 B)False

Question 9

The Future Value of $1 table is used to calculate how much $100 in hand today would be worth in 5 years.

Accepted Answer

A) True 
 B)False

Question 10

Redwood Corporation is considering two alternative investment proposals with the following data:   What is the accounting rate of return for Proposal X? (Round any intermediary calculations to the nearest dollar, and round your final answer to the nearest hundredth of a percent, X.XX%.)

Accepted Answer

A) 2)62% 
B) 15.12% 
C) 1)57% 
D) 3)23% 
A) 2)62% 
B) 15.12% 
C) 1)57% 
D) 3)23%

Question 11

The time value of money is explained by which of the following?

Accepted Answer

A) Invested money earns income over time. 
B) Money is more valuable over time. 
C) A stream of payments is received over time. 
D) Interest is always compounded over time. 
A) Invested money earns income over time. 
B) Money is more valuable over time. 
C) A stream of payments is received over time. 
D) Interest is always compounded over time.

Question 12

Solve the following two cases (the cases are independent).
Future Value of $1
   Future Value of Annuity of $1
   a. If you invest $5,000 today at 10% interest, what is the value of the investment at the end of 5 years?
b. If you invest $1,200 at the end of each of the next 5 years and the investment earns 10% interest, what is the value of the investment at the end of 5 years?

Accepted Answer

a. FV = $5,000 × 1.6

Question 13

The "decision model that computes the difference between the present value of the investment's net cash inflows, using a desired rate of return, and the cost of the initial investment" is best described by which of the following terms?

Accepted Answer

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

Question 14

The health care insurance cost of a company for its assembly-line workers would not be considered to be a capital asset.

Accepted Answer

A) True 
 B)False

Question 15

In what ways are the Net Present Value and Internal Rate of Return methods of capital budgeting alike?

Accepted Answer

A) They both factor in the time value of money. 
B) They both compute the project's unique rate of return. 
C) They both focus on GAAP. 
D) They both measure the profitability index. 
A) They both factor in the time value of money. 
B) They both compute the project's unique rate of return. 
C) They both focus on GAAP. 
D) They both measure the profitability index.

Question 16

The Silverside Company is considering investing in two alternative projects:   What is the accounting rate of return for Project 2? (Round any intermediary calculations to the nearest dollar, and round your final answer to the nearest hundredth of a percent, X.XX%.)

Accepted Answer

A) 54.17% 
B) 4)17% 
C) 16.67% 
D) 2)98% 
A) 54.17% 
B) 4)17% 
C) 16.67% 
D) 2)98%

Question 17

The hurdle rate is the length of time it takes to recoup an investment's initial cost from the cash inflows that investment generates.

Accepted Answer

A) True 
 B)False

Question 18

Icy Peaks Sports makes snowboards. The company wants to add a new machine that would cost $80,000 and have a useful life of 5 years and no residual value. The company expects the machine will generate $24,000 annual cash inflows for 5 years. The discount rate is 10%. What is the net present value of the investment?
Present Value of $1
   Present Value of Annuity of $1

Accepted Answer

($24,000 ×

Question 19

The managerial accountant at New Jewelry considers an investment in a gem cleaning piece of equipment that may increase the value of gems because it fills in the fractures of lower-value gems. The initial cost of the equipment is $1,480,000; whereas the annual net cash inflow is $425,000. The managerial accountant projects a useful life of 13 years. The resale value of the equipment is forecasted at $450,000. Calculate the annual depreciation expense. What is the expected payback period of this investment?

Accepted Answer

Annual dep

Question 20

O'Mally Department Stores is considering two possible expansion plans. One proposal involves opening 5 stores in Indiana at the cost of $1,920,000. Under the other proposal, the company would focus on Kentucky and open 6 stores at a cost of $3,000,000. The following information is available:   The accounting rate of return for the Kentucky proposal is closest to (Round any intermediary calculations to the nearest dollar, and round your final answer to the nearest hundredth of a percent, X.XX%.)

Accepted Answer

A) 16.14%. 
B) 13.86%. 
C) 6)00%. 
D) 30.00%. 
A) 16.14%. 
B) 13.86%. 
C) 6)00%. 
D) 30.00%.

Which of the following is used as the equation's denominator when computing the accounting rate of return for a capital asset?

What is an attribute of the internal rate of return?

The ARR allows managers to compare the present value of future cash generated by a project against the cost of investing in that project.

Which of the following areas does not make significant use of time value of money concepts?

The internal rate of return is used as the discount rate when calculating the net present value of a project.

Redwood Corporation is considering two alternative investment proposals with the following data: How long is the payback period for Proposal Y?

Companies may only use one capital budgeting method because they are all very costly to perform.

The Future Value of $1 table is used to calculate how much $100 in hand today would be worth in 5 years.

Redwood Corporation is considering two alternative investment proposals with the following data: What is the accounting rate of return for Proposal X? (Round any intermediary calculations to the nearest dollar, and round your final answer to the nearest hundredth of a percent, X.XX%.)

The time value of money is explained by which of the following?

The "decision model that computes the difference between the present value of the investment's net cash inflows, using a desired rate of return, and the cost of the initial investment" is best described by which of the following terms?

The health care insurance cost of a company for its assembly-line workers would not be considered to be a capital asset.

In what ways are the Net Present Value and Internal Rate of Return methods of capital budgeting alike?

The Silverside Company is considering investing in two alternative projects: What is the accounting rate of return for Project 2? (Round any intermediary calculations to the nearest dollar, and round your final answer to the nearest hundredth of a percent, X.XX%.)

The hurdle rate is the length of time it takes to recoup an investment's initial cost from the cash inflows that investment generates.

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

Which of the following is used as the equation's denominator when computing the accounting rate of return for a capital asset?

What is an attribute of the internal rate of return?

The ARR allows managers to compare the present value of future cash generated by a project against the cost of investing in that project.

Which of the following areas does not make significant use of time value of money concepts?

The internal rate of return is used as the discount rate when calculating the net present value of a project.

Redwood Corporation is considering two alternative investment proposals with the following data: How long is the payback period for Proposal Y?

Companies may only use one capital budgeting method because they are all very costly to perform.

The Future Value of $1 table is used to calculate how much $100 in hand today would be worth in 5 years.

Redwood Corporation is considering two alternative investment proposals with the following data: What is the accounting rate of return for Proposal X? (Round any intermediary calculations to the nearest dollar, and round your final answer to the nearest hundredth of a percent, X.XX%.)

The time value of money is explained by which of the following?

The "decision model that computes the difference between the present value of the investment's net cash inflows, using a desired rate of return, and the cost of the initial investment" is best described by which of the following terms?

The health care insurance cost of a company for its assembly-line workers would not be considered to be a capital asset.

In what ways are the Net Present Value and Internal Rate of Return methods of capital budgeting alike?

The Silverside Company is considering investing in two alternative projects: What is the accounting rate of return for Project 2? (Round any intermediary calculations to the nearest dollar, and round your final answer to the nearest hundredth of a percent, X.XX%.)

The hurdle rate is the length of time it takes to recoup an investment's initial cost from the cash inflows that investment generates.

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