Question 1

Companies should make decisions concerning investing in computer-integrated technology, based solely on the relevant costs.

Accepted Answer

A) True 
 B)False

Question 2

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 net present value of this investment?

Accepted Answer

A)  ($26,291) 
B)  ($47,277) 
C)  $225,536 
D)  ($60,613) 
E)  $93,000 
A)  ($26,291) 
B)  ($47,277) 
C)  $225,536 
D)  ($60,613) 
E)  $93,000

Question 3

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.
-Use the following information to determine which machine to purchase based on net present value.   Cost of capital is 10 percent.

Accepted Answer

A)  purchase machine 3 
B)  purchase machine 2 
C)  purchase machine 1 
D)  purchase any of the three machines 
E)  purchase all three machines 
A)  purchase machine 3 
B)  purchase machine 2 
C)  purchase machine 1 
D)  purchase any of the three machines 
E)  purchase all three machines

Question 4

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.
-Project ABC is under consideration. Annual cash flows equal $50,000 per year for 5 years. During the first three years the required rate of return is 2 percent. The required rate of return for cash flows in the final two years is 10 percent. What is the present value of cash inflows?

Accepted Answer

A)  $250,000 
B)  $247,730 
C)  $235,650 
D)  $209,391 
E)  $203,642 
A)  $250,000 
B)  $247,730 
C)  $235,650 
D)  $209,391 
E)  $203,642

Question 5

What are the four alternative methods for evaluating capital budgeting projects? What is an advantage and disadvantage of each method?

Accepted Answer

The four methods are: 1. Net Present Val

Question 6

The net present value method is a discounted cash flow method that concentrates only on cash flows.

Accepted Answer

A) True 
 B)False

Question 7

Saturn Ltd. wants to automate one of its production processes. The new equipment will cost $180,000. In addition, Saturn will incur installation and testing costs of $5,000 and $8,500 respectively. The expected life of the equipment is 8 years and the salvage value of the equipment is estimated at $18,000. The annual cash savings are estimated at $32,000. The company's required rate of return is 14%. Ignore income taxes. What is the net present value of this investment?

Accepted Answer

A)  ($25,246) 
B)  $80,500 
C)  ($11,746) 
D)  ($45,056) 
E)  ($38,746) 
A)  ($25,246) 
B)  $80,500 
C)  ($11,746) 
D)  ($45,056) 
E)  ($38,746)

Question 8

The payback method measures the time required to recoup the total dollars invested in the project through cash inflows.

Accepted Answer

A) True 
 B)False

Question 9

Capital budgeting emphasizes the role of financial information in investment decisions.

Accepted Answer

A) True 
 B)False

Question 10

Jensen Manufacturing is considering buying a laser machine which costs $250,000. It requires working capital of $25,000. Annual cash savings are anticipated to be $103,000 for five years. The salvage value at the end of five years is expected to be nil.
Required:
Compute the accrual accounting rate of return based on initial investment.

Accepted Answer

[($103,000 - ($250,0

Question 11

The method that measures the time it will take to recoup, in the form of cash inflows, the total dollars invested in a project is called

Accepted Answer

A)  the accrued accounting rate of return method. 
B)  payback. 
C)  internal rate of return method. 
D)  the book-value method. 
E)  the NPV. 
A)  the accrued accounting rate of return method. 
B)  payback. 
C)  internal rate of return method. 
D)  the book-value method. 
E)  the NPV.

Question 12

Capital budgeting focuses on projects over their entire lives to consider all the cash flows or cash savings from investing in a single project.

Accepted Answer

A) True 
 B)False

Question 13

The net present value method is extremely useful when an organization does not require the same rate of return each year of the project.

Accepted Answer

A) True 
 B)False

Question 14

Alberta Ltd. is considering the purchase of new machinery which costs $147,800. The machine is expected to save $42,300 in operating costs annually for the next 7 years. By how much can the annual cost savings fall (to the nearest hundred dollars) and still provide a 16% return? Ignore income taxes.

Accepted Answer

A)  $5,700 
B)  $36,600 
C)  $21,200 
D)  $42,300 
E)  $0 
A)  $5,700 
B)  $36,600 
C)  $21,200 
D)  $42,300 
E)  $0

Question 15

Shirt Company wants to purchase a new cutting machine for its sewing plant. The investment is expected to generate annual cash inflows of $300,000 recognized at the end of each year. The required rate of return is 12 percent and the new machine is expected to last for 4 years. What is the maximum dollar amount Shirt Company would be willing to spend for the machine?

Accepted Answer

A)  $507,000 
B)  $720,600 
C)  $791,740 
D)  $911,205 
E)  $957,600 
A)  $507,000 
B)  $720,600 
C)  $791,740 
D)  $911,205 
E)  $957,600

Question 16

The terminal disposal price of a replacement machine

Accepted Answer

A)  generally increases cash inflow in the year of disposal. 
B)  is the total of the salvage values of the old machine and the new machine. 
C)  is the salvage value of the old machine. 
D)  is the NPV value of the new machine salvage value. 
E)  is the NPV of the salvage value of the old machine. 
A)  generally increases cash inflow in the year of disposal. 
B)  is the total of the salvage values of the old machine and the new machine. 
C)  is the salvage value of the old machine. 
D)  is the NPV value of the new machine salvage value. 
E)  is the NPV of the salvage value of the old machine.

Question 17

The discount rate, hurdle rate, or (opportunity) cost of capital all refer to the

Accepted Answer

A)  required rate of return. 
B)  internal rate of return. 
C)  net present value. 
D)  discounted cash flow. 
E)  payback period. 
A)  required rate of return. 
B)  internal rate of return. 
C)  net present value. 
D)  discounted cash flow. 
E)  payback period.

Question 18

The payback method allows for managers to highlight liquidity.

Accepted Answer

A) True 
 B)False

Question 19

The net present value method can on occasion indicate erroneous decisions as it implicitly assumes that project cash flows can be reinvested at the project's rate of return.

Accepted Answer

A) True 
 B)False

Question 20

Next Service Centre is considering purchasing a new computer network for $82,000. It will require additional working capital of $13,000. Its anticipated eight-year life will generate additional client revenue of $33,000 annually with operating costs, excludingdepreciation, of $15,000. At the end of eight years, it will have a salvage value of $9,500 and return $5,000 in working capital. Taxes are not considered.
Required:
a. If the company has a required rate of return of 14%, what is the net present value of the proposed investment?
b. What is the internal rate of return?

Accepted Answer

a.
 @#IMG-DLM& b. Trial and error is necessary. Yo

Companies should make decisions concerning investing in computer-integrated technology, based solely on the relevant costs.

What are the four alternative methods for evaluating capital budgeting projects? What is an advantage and disadvantage of each method?

The net present value method is a discounted cash flow method that concentrates only on cash flows.

The payback method measures the time required to recoup the total dollars invested in the project through cash inflows.

Capital budgeting emphasizes the role of financial information in investment decisions.

The method that measures the time it will take to recoup, in the form of cash inflows, the total dollars invested in a project is called

Capital budgeting focuses on projects over their entire lives to consider all the cash flows or cash savings from investing in a single project.

The net present value method is extremely useful when an organization does not require the same rate of return each year of the project.

Alberta Ltd. is considering the purchase of new machinery which costs $147,800. The machine is expected to save $42,300 in operating costs annually for the next 7 years. By how much can the annual cost savings fall (to the nearest hundred dollars) and still provide a 16% return? Ignore income taxes.

The terminal disposal price of a replacement machine

The discount rate, hurdle rate, or (opportunity) cost of capital all refer to the

The payback method allows for managers to highlight liquidity.

The net present value method can on occasion indicate erroneous decisions as it implicitly assumes that project cash flows can be reinvested at the project's rate of return.

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

Companies should make decisions concerning investing in computer-integrated technology, based solely on the relevant costs.

What are the four alternative methods for evaluating capital budgeting projects? What is an advantage and disadvantage of each method?

The net present value method is a discounted cash flow method that concentrates only on cash flows.

The payback method measures the time required to recoup the total dollars invested in the project through cash inflows.

Capital budgeting emphasizes the role of financial information in investment decisions.

The method that measures the time it will take to recoup, in the form of cash inflows, the total dollars invested in a project is called

Capital budgeting focuses on projects over their entire lives to consider all the cash flows or cash savings from investing in a single project.

The net present value method is extremely useful when an organization does not require the same rate of return each year of the project.

The terminal disposal price of a replacement machine

The discount rate, hurdle rate, or (opportunity) cost of capital all refer to the

The payback method allows for managers to highlight liquidity.

The net present value method can on occasion indicate erroneous decisions as it implicitly assumes that project cash flows can be reinvested at the project's rate of return.

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