Question 1

Which of the following is NOT a capital budgeting decision?

Accepted Answer

A)  an airline updates its kiosks to allow passengers to self-check-in 
B)  a convenience store decides whether to expand its operations in a new location 
C)  a hospital decides whether to construct a new pediatric wing 
D)  a retail company decides whether to mark down its old inventory 
A)  an airline updates its kiosks to allow passengers to self-check-in 
B)  a convenience store decides whether to expand its operations in a new location 
C)  a hospital decides whether to construct a new pediatric wing 
D)  a retail company decides whether to mark down its old inventory

Question 2

Discounted cash flow methods incorporate compound interest by assuming that companies will reinvest future cash flows when they are received.

Accepted Answer

A) True 
 B)False

Question 3

List two strengths and one weakness of the accounting rate of return capital budgeting method.

Accepted Answer

Strengths:
1.The only method t

Question 4

All else being equal,investments with longer payback periods are preferable.

Accepted Answer

A) True 
 B)False

Question 5

Anderson Corporation is considering an investment opportunity with the following expected net cash inflows: Year 1,$250,000; Year 2,$350,000; Year 3,$395,000.At the end of Year 3,the residual value of the investment would be $50,000.The company uses a discount rate of 12%,and the initial investment is $400,000.Calculate the NPV of the investment.
Present value of $1:
 $$\begin{array} { | c | c | c | c | c | } 
\hline & 11 \% & 12 \% & 13 \% & 14 \% \
\hline 1 & 0.901 & 0.893 & 0.885 & 0.877 \
\hline 2 & 0.812 & 0.797 & 0.783 & 0.769 \
\hline 3 & 0.731 & 0.712 & 0.693 & 0.675 \
\hline 4 & 0.659 & 0.636 & 0.613 & 0.592 \
\hline 5 & 0.593 & 0.567 & 0.543 & 0.519 \
\hline
\end{array}$$

Accepted Answer

The answer of Anderson Corporation is considering an investment opportunity...

Question 6

All of the following are factors needed when calculating the future value of money EXCEPT ________.

Accepted Answer

A)  the principal amount 
B)  the number of periods 
C)  the maturity value 
D)  the interest rate 
A)  the principal amount 
B)  the number of periods 
C)  the maturity value 
D)  the interest rate

Question 7

Edward Hughes has just won the state lottery and has the following three payout options for after-tax prize money: 1.$166,000 per year at the end of each of the next six years
2)$306,000 (lump sum)now
3)$518,000 (lump sum)six years from now
The annual discount rate is 9%.Compute the present value of the second option.(Round to nearest whole dollar.)
Present value of $1:
$$\begin{array} { | l | r | r | r | } 
\hline & 8 \% & 9 \% & 10 \% \
\hline 1 & 0.926 & 0.917 & 0.909 \
\hline 2 & 0.857 & 0.842 & 0.826 \
\hline 3 & 0.794 & 0.772 & 0.751 \
\hline 4 & 0.735 & 0.708 & 0.683 \
\hline 5 & 0.681 & 0.650 & 0.621 \
\hline 6 & 0.630 & 0.596 & 0.564 \
\hline 7 & 0.583 & 0.547 & 0.513 \
\hline
\end{array}$$

Accepted Answer

A)  $684,000 
B)  $103,600 
C)  $414,400 
D)  $306,000 
A)  $684,000 
B)  $103,600 
C)  $414,400 
D)  $306,000

Question 8

The payback method is used only when the net cash inflows from a capital investment are the same for each period.

Accepted Answer

A) True 
 B)False

Question 9

The discount rate used in a net present value analysis is the ________.

Accepted Answer

A)  rate of inflation 
B)  rate of interest earned on a savings account 
C)  required rate of return or the hurdle rate 
D)  rate of interest charged for debt financing of an investment 
A)  rate of inflation 
B)  rate of interest earned on a savings account 
C)  required rate of return or the hurdle rate 
D)  rate of interest charged for debt financing of an investment

Question 10

Under what circumstances is the investment with the shortest payback the best choice? How should managers use the payback method?

Accepted Answer

The investment with the shortest payback

Question 11

Cash flows used in net present value and internal rate of return analyses ignore ________.

Accepted Answer

A)  future increased sales 
B)  future cost savings 
C)  depreciation expense 
D)  residual value 
A)  future increased sales 
B)  future cost savings 
C)  depreciation expense 
D)  residual value

Question 12

Which of the following best describes the term capital rationing?

Accepted Answer

A)  a method of determining the period within which the cash invested is recouped 
B)  a process of ranking and choosing among alternative capital investments based on the availability of funds 
C)  a method which shows the effect of an investment on a company's accrual-based income 
D)  a process of controlling operating costs when adequate funds are not available 
A)  a method of determining the period within which the cash invested is recouped 
B)  a process of ranking and choosing among alternative capital investments based on the availability of funds 
C)  a method which shows the effect of an investment on a company's accrual-based income 
D)  a process of controlling operating costs when adequate funds are not available

Which of the following is NOT a capital budgeting decision?

Discounted cash flow methods incorporate compound interest by assuming that companies will reinvest future cash flows when they are received.

List two strengths and one weakness of the accounting rate of return capital budgeting method.

All else being equal,investments with longer payback periods are preferable.

All of the following are factors needed when calculating the future value of money EXCEPT ________.

The payback method is used only when the net cash inflows from a capital investment are the same for each period.

The discount rate used in a net present value analysis is the ________.

Under what circumstances is the investment with the shortest payback the best choice? How should managers use the payback method?

Cash flows used in net present value and internal rate of return analyses ignore ________.

Which of the following best describes the term capital rationing?

Accounting and the Business Environment

Recording Business Transactions

The Adjusting Process

Completing the Accounting Cycle

Merchandising Operations

Merchandise Inventory

Accounting Information Systems

Internal Control and Cash

Receivables

Plant Assets,natural Resources,and Intangibles

Current Liabilities and Payroll

Partnerships

Corporations

Long-Term Liabilities

Investments

The Statement of Cash Flows

Financial Statement Analysis

Introduction to Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets

Flexible Budgets and Standard Cost Systems

Cost Allocation and Responsibility Accounting

Short-Term Business Decisions

Filters

Exam 26: Capital Investment Decisions

Which of the following is NOT a capital budgeting decision?

Discounted cash flow methods incorporate compound interest by assuming that companies will reinvest future cash flows when they are received.

List two strengths and one weakness of the accounting rate of return capital budgeting method.

All else being equal,investments with longer payback periods are preferable.

All of the following are factors needed when calculating the future value of money EXCEPT ________.

The payback method is used only when the net cash inflows from a capital investment are the same for each period.

The discount rate used in a net present value analysis is the ________.

Under what circumstances is the investment with the shortest payback the best choice? How should managers use the payback method?

Cash flows used in net present value and internal rate of return analyses ignore ________.

Which of the following best describes the term capital rationing?

Accounting and the Business Environment

Recording Business Transactions

The Adjusting Process

Completing the Accounting Cycle

Merchandising Operations

Merchandise Inventory

Accounting Information Systems

Internal Control and Cash

Receivables

Plant Assets,natural Resources,and Intangibles

Current Liabilities and Payroll

Partnerships

Corporations

Long-Term Liabilities

Investments

The Statement of Cash Flows

Financial Statement Analysis

Introduction to Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets

Flexible Budgets and Standard Cost Systems

Cost Allocation and Responsibility Accounting

Short-Term Business Decisions

Filters