Question 1

Which of the following is true, concerning NPV?

Accepted Answer

A)  When the NPV is positive, the sum of the cash flows from the project equal the initial investment. 
B)  When the NPV is negative, the sum of the cash flows from the project must also be negative 
C)  The project just recovers the initial investment, discounted by the hurdle rate. 
D)  The IRR is less than the RRR when the NPV is positive, after using the RRR as the discount rate. 
E)  The project recovers the initial investment and earns a return greater than the RRR. 
A)  When the NPV is positive, the sum of the cash flows from the project equal the initial investment. 
B)  When the NPV is negative, the sum of the cash flows from the project must also be negative 
C)  The project just recovers the initial investment, discounted by the hurdle rate. 
D)  The IRR is less than the RRR when the NPV is positive, after using the RRR as the discount rate. 
E)  The project recovers the initial investment and earns a return greater than the RRR.

Question 2

The net present value method is better than the internal rate of return because

Accepted Answer

A)  managers generally find the NPV method easier to understand. 
B)  it always yields the same result as IRR. 
C)  IRR focuses more on accounting income. 
D)  it considers the source of cash flows. 
E)  the NPV's of different projects can be added together, and investments may have multiple required rates of return. 
A)  managers generally find the NPV method easier to understand. 
B)  it always yields the same result as IRR. 
C)  IRR focuses more on accounting income. 
D)  it considers the source of cash flows. 
E)  the NPV's of different projects can be added together, and investments may have multiple required rates of return.

Question 3

In selecting capital projects, organizations choose

Accepted Answer

A)  the alternative that matches the RRR. 
B)  the alternative that has revenues that exceed its costs. 
C)  the alternative that has the highest revenues. 
D)  the alternative that has the longest time horizon, but also exceeds the RRR. 
E)  the alternative that provides benefits that exceed predicted costs by the greatest amount. 
A)  the alternative that matches the RRR. 
B)  the alternative that has revenues that exceed its costs. 
C)  the alternative that has the highest revenues. 
D)  the alternative that has the longest time horizon, but also exceeds the RRR. 
E)  the alternative that provides benefits that exceed predicted costs by the greatest amount.

Question 4

The required rate of return is the minimum acceptable percentage return on an investment before taking into account the risk of the investment.

Accepted Answer

A) True 
 B)False

Question 5

Identify capital expenditures relevant to accomplishing strategic goals is the first step in the capital budgeting decision process model.

Accepted Answer

A) True 
 B)False

Question 6

In capital budgeting decisions, relevant cash flows

Accepted Answer

A)  are actual cash flows that differ between alternatives. 
B)  are actual cash flows that do not differ between alternatives. 
C)  are expected future cash flows that differ between alternatives. 
D)  are expected future cash flows that do not differ between alternatives. 
E)  are past cash flows lost. 
A)  are actual cash flows that differ between alternatives. 
B)  are actual cash flows that do not differ between alternatives. 
C)  are expected future cash flows that differ between alternatives. 
D)  are expected future cash flows that do not differ between alternatives. 
E)  are past cash flows lost.

Question 7

When the net present value method is used, only projects with ________ are ________.

Accepted Answer

A)  negative net present value; acceptable 
B)  negative net future value; not acceptable 
C)  positive net future value; acceptable 
D)  positive net present value; acceptable 
E)  positive net value; not acceptable 
A)  negative net present value; acceptable 
B)  negative net future value; not acceptable 
C)  positive net future value; acceptable 
D)  positive net present value; acceptable 
E)  positive net value; not acceptable

Question 8

Net present value can be used to examine the effects of alternative ways of increasing customer loyalty.

Accepted Answer

A) True 
 B)False

Question 9

ABC Boat Company is interested in replacing a moulding machine with a new improved model. The old machine has a salvage value of $20,000 now and a predicted salvage value of $4,000 in six years, if rebuilt. If the old machine is kept, it must be rebuilt in one year at a predicted cost of $40,000. The new machine costs $160,000 and has a predicted salvage value of $28,000 at the end of six years. The new machine will generate cash savings of $40,000 for each of the first three years and $20,000 for each year of its remaining six-year life. Ignore income taxes.
Required:
What is the net present value of purchasing the new machine if the company has a required rate of return of 14 percent?

Accepted Answer

The answer of ABC Boat Company is interested in replacing...

Question 10

Book & Bible Bookstore desires to buy a new coding machine to help control book inventories. The machine sells for $36,586 and requires working capital of $4,000. Its estimated useful life is five years and will have a salvage value of $4,000. Recovery of working capital will be $4,000 at the end of its useful life. Annual cash savings from the purchase of the machine will be $10,000. Ignore income taxes.
Required:
a. Compute the net present value at a 14 percent required rate of return.
b. Compute the internal rate of return.
c. Determine the payback period of the investment.

Accepted Answer

a.
 @#IMG-DLM& b.
Trial and error is required. Bec

Question 11

Problems encountered when the payback method is used may include

Accepted Answer

A)  it is only useful when future cash flows are certain. 
B)  it promotes long-term projects. 
C)  it neglects the time value of money. 
D)  it emphasizes short-term projects. 
E)  it is easy to use. 
A)  it is only useful when future cash flows are certain. 
B)  it promotes long-term projects. 
C)  it neglects the time value of money. 
D)  it emphasizes short-term projects. 
E)  it is easy to use.

Question 12

Use the information below to answer the following question(s).
Wet Water Company drills residential and commercial wells. The company is in the process of analyzing the purchase of a new drill. Information on the proposal is provided below:
   Note: Other than the initial investment, cash flows are end of period.
-Brown Corporation recently purchased a new machine for $339,013.20. The new equipment has a useful life of 10 years. Net cash flows will be $60,000 per year, end of year payments. What is the internal rate of return?

Accepted Answer

A)  10 percent 
B)  12 percent 
C)  14 percent 
D)  16 percent 
E)  18 percent 
A)  10 percent 
B)  12 percent 
C)  14 percent 
D)  16 percent 
E)  18 percent

Question 13

Use the information below to answer the following question(s).
Wet Water Company drills residential and commercial wells. The company is in the process of analyzing the purchase of a new drill. Information on the proposal is provided below:
   Note: Other than the initial investment, cash flows are end of period.
-What is the net present value of the investment?

Accepted Answer

A)  $(25,540) 
B)  $39,579 
C)  $34,507 
D)  $44,000 
E)  $18,115 
A)  $(25,540) 
B)  $39,579 
C)  $34,507 
D)  $44,000 
E)  $18,115

Question 14

The accrual accounting rate of return is an accounting measure of income divided by an accounting measure of investment.

Accepted Answer

A) True 
 B)False

Question 15

Neptune Ltd. wants to expand its operations by manufacturing a new product line. New equipment will cost $225,000. Incremental sales are estimated at $150,000 per year for 6 years. Variable costs of producing the new product line are 52% of sales and incremental annual fixed costs are $25,000. The equipment can be salvaged after 6 years for 16% of its original cost. The company's required rate of return for new projects is 18%. Ignore income taxes. What is the internal rate of return of this investment?

Accepted Answer

A)  13.62% 
B)  12.75% 
C)  10.00% 
D)  6.86% 
E)  18.00% 
A)  13.62% 
B)  12.75% 
C)  10.00% 
D)  6.86% 
E)  18.00%

Question 16

Which of the following results of net present value analyses is the least acceptable?

Accepted Answer

A)  $(15,000) 
B)  $(1,000) 
C)  $12,000 
D)  $0 
E)  $20,000 
A)  $(15,000) 
B)  $(1,000) 
C)  $12,000 
D)  $0 
E)  $20,000

Question 17

Toys and Junk Company is evaluating a capital expenditure proposal that requires an initial investment of $16,004 and has predicted cash inflows of $4,000 per year for 15 years. It will have no salvage value.
Required:
a. Using a required rate of return rate of 14 percent, determine the net present value of the investment proposal.
b. Determine the proposal's internal rate of return.

Accepted Answer

a.
 @#IMG-DLM& b.
Present value factor of an annui

Question 18

A company is considering purchasing a new machine, at a cost of $50,000. This amount will be written off over 5 years at $10,000 per year. The company will have to increase its accounts receivable by $4,000 in the first year. The disposal value of the machine being replaced is $1,500. What is the initial working capital investment required?

Accepted Answer

A)  $54,000 
B)  $52,500 
C)  $36,000 
D)  $4,000 
E)  $2,500 
A)  $54,000 
B)  $52,500 
C)  $36,000 
D)  $4,000 
E)  $2,500

Question 19

The net present value method calculates the expected monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time using the hurdle rate.

Accepted Answer

A) True 
 B)False

Question 20

The primary advantage of the internal rate of return method is that the end result of the computation is in dollars instead of percentages.

Accepted Answer

A) True 
 B)False

Which of the following is true, concerning NPV?

The net present value method is better than the internal rate of return because

In selecting capital projects, organizations choose

The required rate of return is the minimum acceptable percentage return on an investment before taking into account the risk of the investment.

Identify capital expenditures relevant to accomplishing strategic goals is the first step in the capital budgeting decision process model.

In capital budgeting decisions, relevant cash flows

When the net present value method is used, only projects with are .

Net present value can be used to examine the effects of alternative ways of increasing customer loyalty.

Problems encountered when the payback method is used may include

The accrual accounting rate of return is an accounting measure of income divided by an accounting measure of investment.

Which of the following results of net present value analyses is the least acceptable?

The net present value method calculates the expected monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time using the hurdle rate.

The primary advantage of the internal rate of return method is that the end result of the computation is in dollars instead of percentages.

The Accountants Vital Role in Decision Making

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Management

Master Budget and Responsibility Accounting

Flexible Budgets, Variances, and Management Control: I

Flexible Budgets, Variances, and Management Control: II

Income Effects of Denominator Level on Inventory Valuation

Quantitative Analyses of Cost Functions

Decision Making and Relevant Information

Pricing Decisions, Product Profitability Decisions, and Cost Management

Strategy, Balanced Scorecard, and Profitability Analysis

Period Cost Allocation

Cost Allocation: Joint Products and Byproducts

Revenue and Customer Profitability Analysis

Process Costing

Spoilage, Rework, and Scrap

Cost Management: Quality, Time, and the Theory of Constraints

Inventory Cost Management Strategies

Capital Budgeting: a Closer Look

Transfer Pricing and Multinational Management Control Systems

Multinational Performance Measurement and Compensation

Filters

Exam 21: Capital Budgeting: Methods of Investment Analysis

Which of the following is true, concerning NPV?

The net present value method is better than the internal rate of return because

In selecting capital projects, organizations choose

The required rate of return is the minimum acceptable percentage return on an investment before taking into account the risk of the investment.

Identify capital expenditures relevant to accomplishing strategic goals is the first step in the capital budgeting decision process model.

In capital budgeting decisions, relevant cash flows

When the net present value method is used, only projects with ________ are ________.

Net present value can be used to examine the effects of alternative ways of increasing customer loyalty.

Problems encountered when the payback method is used may include

The accrual accounting rate of return is an accounting measure of income divided by an accounting measure of investment.

Which of the following results of net present value analyses is the least acceptable?

The net present value method calculates the expected monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time using the hurdle rate.

The primary advantage of the internal rate of return method is that the end result of the computation is in dollars instead of percentages.

The Accountants Vital Role in Decision Making

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Management

Master Budget and Responsibility Accounting

Flexible Budgets, Variances, and Management Control: I

Flexible Budgets, Variances, and Management Control: II

Income Effects of Denominator Level on Inventory Valuation

Quantitative Analyses of Cost Functions

Decision Making and Relevant Information

Pricing Decisions, Product Profitability Decisions, and Cost Management

Strategy, Balanced Scorecard, and Profitability Analysis

Period Cost Allocation

Cost Allocation: Joint Products and Byproducts

Revenue and Customer Profitability Analysis

Process Costing

Spoilage, Rework, and Scrap

Cost Management: Quality, Time, and the Theory of Constraints

Inventory Cost Management Strategies

Capital Budgeting: a Closer Look

Transfer Pricing and Multinational Management Control Systems

Multinational Performance Measurement and Compensation

Filters

When the net present value method is used, only projects with are .