Question 1

Capital investments do not typically require large sums of money.

Accepted Answer

A) True 
 B)False

Question 2

Income from an apartment building you own totals $220,000 per year. You plan on selling the building and retiring to France in 13 years. Assuming you can invest the income from the building each year at 2%, how much money will you have on which to retire? Future Value of $1
  Future Value of Annuity of $1

Accepted Answer

A) $2,860,000 
B) $440,000 
C) $3,229,600 
D) $2,496,560 
A) $2,860,000 
B) $440,000 
C) $3,229,600 
D) $2,496,560

Question 3

Assuming an interest rate of 10%, the present value of $8000 received at the end of each year for 5 years would be closest to: Present Value of $1
  Present Value of Annuity of $1

Accepted Answer

A) $4968. 
B) $40,000. 
C) $30,328. 
D) $61,776. 
A) $4968. 
B) $40,000. 
C) $30,328. 
D) $61,776.

Question 4

The three factors that affect the time value of money are principal, number of periods, and the interest rate.

Accepted Answer

A) True 
 B)False

Question 5

Neither the payback period nor the IRR capital budgeting method recognizes the time value of money.

Accepted Answer

A) True 
 B)False

Question 6

The present value of $1,000,000 received in 14 years, given an interest rate of 2%, is: Present Value of $1
  Present Value of Annuity of $1

Accepted Answer

A) $758,000. 
B) $743,000. 
C) $1,319,000. 
D) $12,106,000. 
A) $758,000. 
B) $743,000. 
C) $1,319,000. 
D) $12,106,000.

Question 7

The general rule when using the Internal Rate of Return to decide whether to invest in capital assets is to invest if the IRR ___________ the required rate of return.

Accepted Answer

A) does not exceed 
B) is half as much as 
C) exceeds 
D) Cannot determine from the information given. 
A) does not exceed 
B) is half as much as 
C) exceeds 
D) Cannot determine from the information given.

Question 8

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

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

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 $370,000. Projected net cash inflows from the equipment are as follows:   Sunny Days Corporation's hurdle rate is 12%. Assume the residual value is zero.
What is the net present value of the equipment?
Present Value of $1
  Present Value of Annuity of $1

Accepted Answer

A) -$96,403 
B) $11,568 
C) $107,971 
D) $96,403 
A) -$96,403 
B) $11,568 
C) $107,971 
D) $96,403

Question 10

Dandy's Fun Park is evaluating the purchase of a new game to be located on its Midway. Dandy's has narrowed their choices down to two: the Wacky Water Race game and the Whack-A-Mole game. Financial data about the two choices follows.   What is the net present value of the Wacky Water Race game?
Present Value of $1
  Present Value of Annuity of $1

Accepted Answer

A) $(24,195) 
B) $(13,306) 
C) $13,306 
D) $24,195 
A) $(24,195) 
B) $(13,306) 
C) $13,306 
D) $24,195

Question 11

A major criticism of the payback method is that it focuses only on time, not on profitability.

Accepted Answer

A) True 
 B)False

Question 12

If the accounting rate of return exceeds the required accounting rate of return,

Accepted Answer

A) invest in the capital asset. 
B) do not invest in the capital asset. 
C) only invest if the payback period is also greater than the required rate of return. 
D) only invest if the payback period is also less than the required rate of return. 
A) invest in the capital asset. 
B) do not invest in the capital asset. 
C) only invest if the payback period is also greater than the required rate of return. 
D) only invest if the payback period is also less than the required rate of return.

Question 13

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 F54 Model?
Present Value of $1
  Present Value of Annuity of $1

Accepted Answer

A) -$16,776 
B) $272,000 
C) $203,224 
D) $168,000 
A) -$16,776 
B) $272,000 
C) $203,224 
D) $168,000

Question 14

The profitability index is calculated by dividing the present value of net cash inflows by

Accepted Answer

A) residual value. 
B) initial investment minus residual value. 
C) by the net present value. 
D) initial investment. 
A) residual value. 
B) initial investment minus residual value. 
C) by the net present value. 
D) initial investment.

Question 15

The Crystal Company uses straight-line depreciation and is considering a capital expenditure of which the following relevant cash flow data have been estimated:   The total depreciation expense over the life of the asset is

Accepted Answer

A) $190,000. 
B) $540,000. 
C) $460,000. 
D) $20,000. 
A) $190,000. 
B) $540,000. 
C) $460,000. 
D) $20,000.

Question 16

The ________ capital budgeting model considers both profitability and the time value of money.

Accepted Answer

A) payback 
B) net present value 
C) accounting rate of return 
D) Both a and c are correct 
A) payback 
B) net present value 
C) accounting rate of return 
D) Both a and c are correct

Question 17

When evaluating capital investment projects, if the internal rate of return is less than the required rate of return, the project will be accepted.

Accepted Answer

A) True 
 B)False

Question 18

You won the lottery and have a number of choices as to how to take the money. Which choice yields a greater present value? Present Value of $1
  Present Value of Annuity of $1

Accepted Answer

A) $12,000 a year at the end of each of the next 6 years using a 6% discount rate 
B) $53,500 (lump sum)now using a 6% discount rate 
C) $90,000 (lump sum)7 years from now using a 6% discount rate 
D) $92,000 (lump sum)7 years from now using an 8% discount rate 
A) $12,000 a year at the end of each of the next 6 years using a 6% discount rate 
B) $53,500 (lump sum)now using a 6% discount rate 
C) $90,000 (lump sum)7 years from now using a 6% discount rate 
D) $92,000 (lump sum)7 years from now using an 8% discount rate

Question 19

Sicily, Inc., is considering investing $160,000 in a machine that may last 4 years with no residual value. The new machine will generate annual operating income of $60,000 per year for 4 years. What is the accounting rate of return?

Accepted Answer

The answer of Sicily, Inc., is considering investing $160,000 in...

Question 20

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 present value of all future cash inflows from the snack machines and residual value?
Present Value of $1
  Present Value of Annuity of $1

Accepted Answer

A) $135,840 
B) $137,296 
C) $70,840 
D) $96,000 
A) $135,840 
B) $137,296 
C) $70,840 
D) $96,000

Capital investments do not typically require large sums of money.

Assuming an interest rate of 10%, the present value of $8000 received at the end of each year for 5 years would be closest to: Present Value of $1 Present Value of Annuity of $1

The three factors that affect the time value of money are principal, number of periods, and the interest rate.

Neither the payback period nor the IRR capital budgeting method recognizes the time value of money.

The present value of $1,000,000 received in 14 years, given an interest rate of 2%, is: Present Value of $1 Present Value of Annuity of $1

The general rule when using the Internal Rate of Return to decide whether to invest in capital assets is to invest if the IRR ___________ the required rate of return.

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

A major criticism of the payback method is that it focuses only on time, not on profitability.

If the accounting rate of return exceeds the required accounting rate of return,

The profitability index is calculated by dividing the present value of net cash inflows by

The Crystal Company uses straight-line depreciation and is considering a capital expenditure of which the following relevant cash flow data have been estimated: The total depreciation expense over the life of the asset is

The ________ capital budgeting model considers both profitability and the time value of money.

When evaluating capital investment projects, if the internal rate of return is less than the required rate of return, the project will be accepted.

You won the lottery and have a number of choices as to how to take the money. Which choice yields a greater present value? Present Value of $1 Present Value of Annuity of $1

Sicily, Inc., is considering investing $160,000 in a machine that may last 4 years with no residual value. The new machine will generate annual operating income of $60,000 per year for 4 years. What is the accounting rate of return?

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

Capital investments do not typically require large sums of money.

Assuming an interest rate of 10%, the present value of $8000 received at the end of each year for 5 years would be closest to: Present Value of $1 Present Value of Annuity of $1

The three factors that affect the time value of money are principal, number of periods, and the interest rate.

Neither the payback period nor the IRR capital budgeting method recognizes the time value of money.

The present value of $1,000,000 received in 14 years, given an interest rate of 2%, is: Present Value of $1 Present Value of Annuity of $1

The general rule when using the Internal Rate of Return to decide whether to invest in capital assets is to invest if the IRR ___________ the required rate of return.

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

A major criticism of the payback method is that it focuses only on time, not on profitability.

If the accounting rate of return exceeds the required accounting rate of return,

The profitability index is calculated by dividing the present value of net cash inflows by

The Crystal Company uses straight-line depreciation and is considering a capital expenditure of which the following relevant cash flow data have been estimated: The total depreciation expense over the life of the asset is

The ________ capital budgeting model considers both profitability and the time value of money.

When evaluating capital investment projects, if the internal rate of return is less than the required rate of return, the project will be accepted.

You won the lottery and have a number of choices as to how to take the money. Which choice yields a greater present value? Present Value of $1 Present Value of Annuity of $1

Sicily, Inc., is considering investing $160,000 in a machine that may last 4 years with no residual value. The new machine will generate annual operating income of $60,000 per year for 4 years. What is the accounting rate of return?

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