Question 1

The minimum annual acceptable rate of return on an investment is the ________.

Accepted Answer

A)  accrual accounting rate of return 
B)  hurdle rate 
C)  internal rate of return 
D)  net present value 
A)  accrual accounting rate of return 
B)  hurdle rate 
C)  internal rate of return 
D)  net present value

Question 2

The net present value method can be used in situations where the required rate of return varies over the life of the project.

Accepted Answer

A) True 
 B)False

Question 3

The relevant terminal disposal price of a machine equals the ________.

Accepted Answer

A)  difference between the salvage value of the old machine and the ultimate salvage value of the new machine 
B)  total of the salvage values of the old machine and the new machine 
C)  salvage value of the old machine 
D)  salvage value of the new machine 
A)  difference between the salvage value of the old machine and the ultimate salvage value of the new machine 
B)  total of the salvage values of the old machine and the new machine 
C)  salvage value of the old machine 
D)  salvage value of the new machine

Question 4

The reason to have a post-investment audit is ________.

Accepted Answer

A)  they encourage mid-level managers to make overly optimistic estimates during the early stages of the capital budgeting process 
B)  they help alert senior management to problems in the implementation of projects 
C)  they analyze by calculating contribution-margin 
D)  they help in calculating present value 
A)  they encourage mid-level managers to make overly optimistic estimates during the early stages of the capital budgeting process 
B)  they help alert senior management to problems in the implementation of projects 
C)  they analyze by calculating contribution-margin 
D)  they help in calculating present value

Question 5

Ambinu Flower Company provides flowers and other nursery products for decorative purposes in medium to large sized restaurants and businesses.The company has been investigating the purchase of a new specially equipped van for deliveries.The van has a value of $113,750 with a seven-year life.The expected additional cash inflows are $32,500 per year.What is the payback period for this investment?

Accepted Answer

A)  3 years 
B)  3.5 years 
C)  6 years 
D)  4 years 
A)  3 years 
B)  3.5 years 
C)  6 years 
D)  4 years

Question 6

Net initial investment includes ________.

Accepted Answer

A)  depreciation on new equipment, cash outflow for working capital, and after-tax cash inflow from disposal of the old equipment 
B)  cash outflow to purchase new equipment, depreciation on new equipment, and after-tax cash inflow from disposal of the old equipment 
C)  cash outflow to purchase new equipment, cash outflow for working capital, and after-tax cash inflow from disposal of the old equipment 
D)  cash outflow to purchase new equipment, cash outflow for working capital, and depreciation on new equipment 
A)  depreciation on new equipment, cash outflow for working capital, and after-tax cash inflow from disposal of the old equipment 
B)  cash outflow to purchase new equipment, depreciation on new equipment, and after-tax cash inflow from disposal of the old equipment 
C)  cash outflow to purchase new equipment, cash outflow for working capital, and after-tax cash inflow from disposal of the old equipment 
D)  cash outflow to purchase new equipment, cash outflow for working capital, and depreciation on new equipment

Question 7

As cash flows and time value of money are central to capital budgeting decisions,the AARR method is regarded as better than the IRR method.

Accepted Answer

A) True 
 B)False

Question 8

The net present value method focuses on ________.

Accepted Answer

A)  cash flows and discount rate 
B)  inventory cost and cost of capital 
C)  working capital and cost of capital 
D)  operating income and required rate of return 
A)  cash flows and discount rate 
B)  inventory cost and cost of capital 
C)  working capital and cost of capital 
D)  operating income and required rate of return

Question 9

The Ambitz Corporation has an annual cash inflow from operations from its investment in a capital asset of $35,000 each year for four years.The corporation's income tax rate is 40%.Calculate the total after-tax cash inflow from operations for four years.

Accepted Answer

A)  $ 140,000 
B)  $ 150,000 
C)  $ 84,000 
D)  $35,000 
A)  $ 140,000 
B)  $ 150,000 
C)  $ 84,000 
D)  $35,000

Question 10

Depreciation is usually NOT considered an operating cash flow in capital budgeting because ________.

Accepted Answer

A)  depreciation is usually a constant amount each year over the life of the capital investment 
B)  deducting depreciation from operating cash flows would be counting the lump-sum amount twice 
C)  depreciation usually does not result in an increase in working capital 
D)  depreciation usually has no effect on the disposal price of the machine 
A)  depreciation is usually a constant amount each year over the life of the capital investment 
B)  deducting depreciation from operating cash flows would be counting the lump-sum amount twice 
C)  depreciation usually does not result in an increase in working capital 
D)  depreciation usually has no effect on the disposal price of the machine

Question 11

List the capital budgeting methods used to analyze financial information.

Accepted Answer

Capital budgeting is long-run planning f

Question 12

Which of the following is a stage of the capital budgeting process in which a firm obtains funding for the project?

Accepted Answer

A)  make decisions by choosing among alternatives stage 
B)  identify projects stage 
C)  obtain information stage 
D)  implement the decision, evaluate performance, and learn stage 
A)  make decisions by choosing among alternatives stage 
B)  identify projects stage 
C)  obtain information stage 
D)  implement the decision, evaluate performance, and learn stage

Question 13

Hypore Darby Park Department is considering a new capital investment.The following information is available on the investment.The cost of the machine will be $251,130.The annual cost savings if the new machine is acquired will be $110,000.The machine will have a 3-year life,at which time the terminal disposal value is expected to be zero.Hypore Park Department is assuming no tax consequences.What is the internal rate of return for Hypore Park Department?

Accepted Answer

A)  10% 
B)  15% 
C)  14% 
D)  16% 
A)  10% 
B)  15% 
C)  14% 
D)  16%

Question 14

An example of a sunk cost in a capital budgeting decision for new equipment is ________.

Accepted Answer

A)  the initial investment in working capital 
B)  the original price of an old equipment 
C)  the necessary transportation costs on a new equipment 
D)  the initial investment in a new equipment 
A)  the initial investment in working capital 
B)  the original price of an old equipment 
C)  the necessary transportation costs on a new equipment 
D)  the initial investment in a new equipment

Question 15

In the "obtain information" stage of capital budgeting,a company gathers information from all parts of the value chain to evaluate alternative projects.

Accepted Answer

A) True 
 B)False

Question 16

A capital budgeting project is accepted if the required rate of return equals or exceeds the internal rate of return.

Accepted Answer

A) True 
 B)False

Question 17

Depreciation results in income tax cash savings which are not relevant in capital budgeting decisions.

Accepted Answer

A) True 
 B)False

Question 18

In nominal rate of return,the inflation element is the premium above the real rate.

Accepted Answer

A) True 
 B)False

Question 19

How is inflation related to capital budgeting? Discuss.

Accepted Answer

When using the net present value method

Question 20

Discuss a range of factors that managers may have to consider when making capital budgeting decisions that are strategic in nature.

Accepted Answer

The introduction of new technology into

Exam 21: Capital Budgeting and Cost Analysis

The minimum annual acceptable rate of return on an investment is the ________.

The net present value method can be used in situations where the required rate of return varies over the life of the project.

The relevant terminal disposal price of a machine equals the ________.

The reason to have a post-investment audit is ________.

Net initial investment includes ________.

As cash flows and time value of money are central to capital budgeting decisions,the AARR method is regarded as better than the IRR method.

The net present value method focuses on ________.

The Ambitz Corporation has an annual cash inflow from operations from its investment in a capital asset of $35,000 each year for four years.The corporation's income tax rate is 40%.Calculate the total after-tax cash inflow from operations for four years.

Depreciation is usually NOT considered an operating cash flow in capital budgeting because ________.

List the capital budgeting methods used to analyze financial information.

Which of the following is a stage of the capital budgeting process in which a firm obtains funding for the project?

An example of a sunk cost in a capital budgeting decision for new equipment is ________.

In the "obtain information" stage of capital budgeting,a company gathers information from all parts of the value chain to evaluate alternative projects.

A capital budgeting project is accepted if the required rate of return equals or exceeds the internal rate of return.

Depreciation results in income tax cash savings which are not relevant in capital budgeting decisions.

In nominal rate of return,the inflation element is the premium above the real rate.

How is inflation related to capital budgeting? Discuss.

Discuss a range of factors that managers may have to consider when making capital budgeting decisions that are strategic in nature.

The Manager and Management Accounting

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Activity-Based Management

Master Budget and Responsibility Accounting

Flexible Budgets, direct-Cost Variances, and Management Control

Flexible Budgets, overhead Cost Variances, and Management Control

Inventory Costing and Capacity Analysis

Determining How Costs Behave

Decision Making and Relevant Information

Strategy, balanced Scorecard, and Strategic Profitability Analysis

Pricing Decisions and Cost Management

Cost Allocation, customer-Profitability Analysis, and Sales-Variance Analysis

Allocation of Support-Department Costs, common Costs, and Revenues

Cost Allocation: Joint Products and Byproducts

Process Costing

Spoilage, rework, and Scrap

Balanced Scorecard: Quality and Time

Inventory Management, just-In-Time, and Simplified Costing Methods

Management Control Systems, transfer Pricing, and Multinational Considerations

Performance Measurement, compensation, and Multinational Considerations

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