Question 1

In the NPV method,errors in forecasting terminal disposal values are usually not crucial because the present value of these cash flows is small.

Accepted Answer

A) True 
 B)False

Question 2

The time it will take to recoup in the form of cash inflows the initial dollars invested in an investment project is called the ________.

Accepted Answer

A)  payback period 
B)  accounting rate of return 
C)  internal rate of return period 
D)  recovery period 
A)  payback period 
B)  accounting rate of return 
C)  internal rate of return period 
D)  recovery period

Question 3

The use of accelerated depreciation for tax purposes will generally produce a present value of tax savings from depreciation expense that is ________.

Accepted Answer

A)  less than the present value of tax savings provided by straight-line depreciation 
B)  greater than the present value of tax savings provided by straight-line depreciation 
C)  the same as the present value of tax savings provided by straight-line depreciation 
D)  less than the present value of tax savings provided by other depreciation methods 
A)  less than the present value of tax savings provided by straight-line depreciation 
B)  greater than the present value of tax savings provided by straight-line depreciation 
C)  the same as the present value of tax savings provided by straight-line depreciation 
D)  less than the present value of tax savings provided by other depreciation methods

Question 4

Dixie Company is considering the purchase of equipment for $360,000.The equipment will have a ten year life with no terminal salvage value.Straight-line depreciation will be used for tax purposes.It is expected that the equipment will generate annual sales of $180,000 and annual production costs,exclusive of depreciation,of $120,000.The tax rate is 40%.What is the net annual after-tax cash flow from the equipment?

Accepted Answer

A)  $14,400 cash inflow 
B)  $24,000 cash inflow 
C)  $36,000 cash inflow 
D)  $50,400 cash inflow 
A)  $14,400 cash inflow 
B)  $24,000 cash inflow 
C)  $36,000 cash inflow 
D)  $50,400 cash inflow

Question 5

________ is a capital budgeting model that ignores the time value of money and focuses on the profitability of an investment project.

Accepted Answer

A)  Payback model 
B)  Internal rate of return model 
C)  Accounting rate of return model 
D)  Real options model 
A)  Payback model 
B)  Internal rate of return model 
C)  Accounting rate of return model 
D)  Real options model

Question 6

Accepting a project with a ________ NPV makes the firm worse off financially because the cost of the investment exceeds the ________.

Accepted Answer

A)  positive; present value of future benefits 
B)  negative; present value of future cash flows 
C)  negative; present value of present cash flows 
D)  positive; present value of present cash flows 
A)  positive; present value of future benefits 
B)  negative; present value of future cash flows 
C)  negative; present value of present cash flows 
D)  positive; present value of present cash flows

Question 7

Zebron Company is considering the following investment:
$\begin{array}{ll}
\text { Initial capital investment } & \$ 200,000 \
\text { Estimated useful life } & 3 \text { years } \
\text { Estimated disposal value in } 3 \text { years } & \$ 1,000 \
\text { Estimated annual savings in cash operating costs(end of year) } & \$ 100,000 \
\text { Minimum desired rate of return } & 10 \% \
\text { Present value of ordinary annuity of one, } 3 \text { periods at } 10 \% & 2.4869 \
\text { Present value of one, } 3 \text { periods at } 10 \% & 0.7513
\end{array}$
Assume straight-line depreciation is used.Ignore income taxes.The net present value of the investment is ________.

Accepted Answer

A)  $48,690 
B)  $49,441 
C)  $49,690 
D)  $101,000 
A)  $48,690 
B)  $49,441 
C)  $49,690 
D)  $101,000

Question 8

Lonestar Company pays taxes of 25% on their first $25,000 of taxable income and 30% on any taxable income in excess of $25,000.The company's current taxable income is $30,000.What is the marginal tax rate?

Accepted Answer

A)  25% 
B)  30% 
C)  40% 
D)  65% 
A)  25% 
B)  30% 
C)  40% 
D)  65%

Question 9

When undertaking a capital budgeting problem with taxes,the total cash effect of depreciation expense on a long-term asset is equal to ________.

Accepted Answer

A)  $0 
B)  depreciation expense times the tax rate 
C)  depreciation expense times (1 minus the tax rate) 
D)  depreciation expense divided by the tax rate 
A)  $0 
B)  depreciation expense times the tax rate 
C)  depreciation expense times (1 minus the tax rate) 
D)  depreciation expense divided by the tax rate

Question 10

If the IRR on a project is greater than the required rate of return,then the net present value of the project is ________.

Accepted Answer

A)  equal to zero 
B)  less than zero 
C)  greater than zero 
D)  none of the above 
A)  equal to zero 
B)  less than zero 
C)  greater than zero 
D)  none of the above

Question 11

A plant asset with a book value of $50,000 is sold for $40,000.The applicable tax rate is 50%.What is the tax effect of the loss on sale?

Accepted Answer

A)  $5,000 cash outflow 
B)  $5,000 cash inflow 
C)  $20,000 cash inflow 
D)  $25,000 cash inflow 
A)  $5,000 cash outflow 
B)  $5,000 cash inflow 
C)  $20,000 cash inflow 
D)  $25,000 cash inflow

Question 12

A disadvantage of the accounting rate of return model is ________.

Accepted Answer

A)  it focuses on cash flows 
B)  it is inconsistent with accrual accounting 
C)  it is not based on the familiar financial statements 
D)  it ignores the time value of money 
A)  it focuses on cash flows 
B)  it is inconsistent with accrual accounting 
C)  it is not based on the familiar financial statements 
D)  it ignores the time value of money

Question 13

A follow-up evaluation of capital-budgeting decisions is called a post-audit.

Accepted Answer

A) True 
 B)False

Question 14

As the minimum required rate of return increases for an investment project,the net present value of the project ________.

Accepted Answer

A)  increases 
B)  does not change 
C)  decreases 
D)  becomes positive 
A)  increases 
B)  does not change 
C)  decreases 
D)  becomes positive

Question 15

Monster Company is required to pay taxes of 25% on income up to $20,000 and 30% on any income in excess of $20,000.The company has pretax income of $80,000.What is the average tax rate for Monster Company?

Accepted Answer

A)  25.0% 
B)  26.5% 
C)  28.75% 
D)  32.5% 
A)  25.0% 
B)  26.5% 
C)  28.75% 
D)  32.5%

Question 16

The internal rate of return and the net present value methods usually result in the same investment decisions.

Accepted Answer

A) True 
 B)False

Question 17

The book value of an asset that is being replaced is a relevant cash flow in the net present value method.

Accepted Answer

A) True 
 B)False

Question 18

A plant asset with a book value of $320,000 is sold for $400,000.The tax rate is 20%.What is the tax effect of the gain on sale?

Accepted Answer

A)  $16,000 cash outflow 
B)  $16,000 cash inflow 
C)  $64,000 cash inflow 
D)  $80,000 cash inflow 
A)  $16,000 cash outflow 
B)  $16,000 cash inflow 
C)  $64,000 cash inflow 
D)  $80,000 cash inflow

Question 19

In capital budgeting decisions,the riskiness of a project may be shown by ________.

Accepted Answer

A)  the size of the future cash inflows from the project 
B)  the size of the future cash outflows from the project 
C)  the timing of the cash flows from the project 
D)  the project's sensitivity to changes in predictions of cash flows 
A)  the size of the future cash inflows from the project 
B)  the size of the future cash outflows from the project 
C)  the timing of the cash flows from the project 
D)  the project's sensitivity to changes in predictions of cash flows

Question 20

One purpose of a post-audit is to provide information for improving future predictions of cash flows.

Accepted Answer

A) True 
 B)False

In the NPV method,errors in forecasting terminal disposal values are usually not crucial because the present value of these cash flows is small.

The time it will take to recoup in the form of cash inflows the initial dollars invested in an investment project is called the ________.

The use of accelerated depreciation for tax purposes will generally produce a present value of tax savings from depreciation expense that is ________.

________ is a capital budgeting model that ignores the time value of money and focuses on the profitability of an investment project.

Accepting a project with a NPV makes the firm worse off financially because the cost of the investment exceeds the .

Lonestar Company pays taxes of 25% on their first $25,000 of taxable income and 30% on any taxable income in excess of $25,000.The company's current taxable income is $30,000.What is the marginal tax rate?

When undertaking a capital budgeting problem with taxes,the total cash effect of depreciation expense on a long-term asset is equal to ________.

If the IRR on a project is greater than the required rate of return,then the net present value of the project is ________.

A plant asset with a book value of $50,000 is sold for $40,000.The applicable tax rate is 50%.What is the tax effect of the loss on sale?

A disadvantage of the accounting rate of return model is ________.

A follow-up evaluation of capital-budgeting decisions is called a post-audit.

As the minimum required rate of return increases for an investment project,the net present value of the project ________.

Monster Company is required to pay taxes of 25% on income up to $20,000 and 30% on any income in excess of $20,000.The company has pretax income of $80,000.What is the average tax rate for Monster Company?

The internal rate of return and the net present value methods usually result in the same investment decisions.

The book value of an asset that is being replaced is a relevant cash flow in the net present value method.

A plant asset with a book value of $320,000 is sold for $400,000.The tax rate is 20%.What is the tax effect of the gain on sale?

In capital budgeting decisions,the riskiness of a project may be shown by ________.

One purpose of a post-audit is to provide information for improving future predictions of cash flows.

Managerial Accounting,the Business Organization,and Professional Ethics

Introduction to Cost Behavior and Cost Volume Profit Relationships

Measurement of Cost Behavior

Cost Management Systems and Activity-Based Costing

Relevant Information for Decision Making With a Focus on Pricing Decisions

Relevant Information for Decision Making With a Focus on Operational Decisions

Introduction to Budgets and Preparing the Master Budget

Flexible Budgets and Variance Analysis

Management Control Systems and Responsibility Accounting

Management Control in Decentralized Organizations

Cost Allocation

Accounting for Overhead Costs

Job-Order Costing and Process-Costing Systems

Basic Accounting: Concepts, techniques, and Conventions

Understanding Corporate Annual Reports: Basic Financial Statements

Understanding and Analyzing Consolidated Financial Statements

Filters

Exam 11: Capital Budgeting

In the NPV method,errors in forecasting terminal disposal values are usually not crucial because the present value of these cash flows is small.

The time it will take to recoup in the form of cash inflows the initial dollars invested in an investment project is called the ________.

The use of accelerated depreciation for tax purposes will generally produce a present value of tax savings from depreciation expense that is ________.

________ is a capital budgeting model that ignores the time value of money and focuses on the profitability of an investment project.

Accepting a project with a ________ NPV makes the firm worse off financially because the cost of the investment exceeds the ________.

Lonestar Company pays taxes of 25% on their first $25,000 of taxable income and 30% on any taxable income in excess of $25,000.The company's current taxable income is $30,000.What is the marginal tax rate?

When undertaking a capital budgeting problem with taxes,the total cash effect of depreciation expense on a long-term asset is equal to ________.

If the IRR on a project is greater than the required rate of return,then the net present value of the project is ________.

A plant asset with a book value of $50,000 is sold for $40,000.The applicable tax rate is 50%.What is the tax effect of the loss on sale?

A disadvantage of the accounting rate of return model is ________.

A follow-up evaluation of capital-budgeting decisions is called a post-audit.

As the minimum required rate of return increases for an investment project,the net present value of the project ________.

Monster Company is required to pay taxes of 25% on income up to $20,000 and 30% on any income in excess of $20,000.The company has pretax income of $80,000.What is the average tax rate for Monster Company?

The internal rate of return and the net present value methods usually result in the same investment decisions.

The book value of an asset that is being replaced is a relevant cash flow in the net present value method.

A plant asset with a book value of $320,000 is sold for $400,000.The tax rate is 20%.What is the tax effect of the gain on sale?

In capital budgeting decisions,the riskiness of a project may be shown by ________.

One purpose of a post-audit is to provide information for improving future predictions of cash flows.

Managerial Accounting,the Business Organization,and Professional Ethics

Introduction to Cost Behavior and Cost Volume Profit Relationships

Measurement of Cost Behavior

Cost Management Systems and Activity-Based Costing

Relevant Information for Decision Making With a Focus on Pricing Decisions

Relevant Information for Decision Making With a Focus on Operational Decisions

Introduction to Budgets and Preparing the Master Budget

Flexible Budgets and Variance Analysis

Management Control Systems and Responsibility Accounting

Management Control in Decentralized Organizations

Cost Allocation

Accounting for Overhead Costs

Job-Order Costing and Process-Costing Systems

Basic Accounting: Concepts, techniques, and Conventions

Understanding Corporate Annual Reports: Basic Financial Statements

Understanding and Analyzing Consolidated Financial Statements

Filters

Accepting a project with a NPV makes the firm worse off financially because the cost of the investment exceeds the .