Question 1

A qualitative characteristic that may impact upon capital investment analysis is employee morale.

Accepted Answer

A) True 
 B)False

Question 2

The rate of earnings is 12% and the cash to be received in 2 years is $10,000.Determine the present value amount,using the following partial table of present value of $1 at compound interest: ​
  ​

Accepted Answer

A)  $8,930 
B)  $7,120 
C)  $7,970 
D)  $8,260 
A)  $8,930 
B)  $7,120 
C)  $7,970 
D)  $8,260

Question 3

Which of the following are present value methods of analyzing capital investment proposals?

Accepted Answer

A)  internal rate of return and average rate of return 
B)  average rate of return and net present value 
C)  net present value and internal rate of return 
D)  net present value and payback 
A)  internal rate of return and average rate of return 
B)  average rate of return and net present value 
C)  net present value and internal rate of return 
D)  net present value and payback

Question 4

Which of the following is an advantage of the cash payback method?

Accepted Answer

A)  easy to use 
B)  takes into consideration the time value of money 
C)  includes the cash flow over the entire life of the proposal 
D)  emphasizes accounting income 
A)  easy to use 
B)  takes into consideration the time value of money 
C)  includes the cash flow over the entire life of the proposal 
D)  emphasizes accounting income

Question 5

Which of the following provisions of the Internal Revenue Code can be used to reduce the amount of the income tax expense arising from capital investment projects?

Accepted Answer

A)  deductions for individuals 
B)  depreciation deduction 
C)  minimum tax provision 
D)  charitable contributions 
A)  deductions for individuals 
B)  depreciation deduction 
C)  minimum tax provision 
D)  charitable contributions

Question 6

An investment of $185,575 is expected to generate returns of $65,000 per year for each of the next 4- years.What is the investment's internal rate of return?
Below is a table for the present value of $1 at compound interest.
​
​
   Below is a table for the present value of an annuity of $1 at compound interest.
​

Accepted Answer

$185,575 /

Question 7

If in evaluating a proposal by use of the net present value method there is an excess of the present value of future cash inflows over the amount to be invested,the rate of return on the proposal is less than the rate used in the analysis.

Accepted Answer

A) True 
 B)False

Question 8

Using the tables above,what would be the present value of $8,000 to be received 1 year from today,assuming an earnings rate of 12%?

Accepted Answer

A)  $7,544 
B)  $7,120 
C)  $7,272 
D)  $7,144 
A)  $7,544 
B)  $7,120 
C)  $7,272 
D)  $7,144

Question 9

The cash payback method can be used only when net cash inflows are the same for each period.

Accepted Answer

A) True 
 B)False

Question 10

Match each definition that follows with the term (a-f)it defines.
-The length of time it will take to recover through cash inflows the dollars of a capital outlay

Accepted Answer

A) Capital rationing 
B) Annuity 
C) Capital investment analysis 
D) Internal rate of return method 
E) Payback period
F)Accounting rate of return 
A) Capital rationing 
B) Annuity 
C) Capital investment analysis 
D) Internal rate of return method 
E) Payback period
F)Accounting rate of return

Question 11

The anticipated purchase of a fixed asset for $400,000,with a useful life of 5 years and no residual value,is expected to yield total net income of $200,000 for the 5 years.The expected average rate of return on investment is 25.0%.

Accepted Answer

A) True 
 B)False

Question 12

The process by which management plans,evaluates,and controls long-term investment decisions involving fixed assets is called capital investment analysis.

Accepted Answer

A) True 
 B)False

Question 13

What is the present value of $8,000 to be received at the end of 6-years if the required rate of return is 15%?
Below is a table for the present value of $1 at compound interest.
​
   Below is a table for the present value of an annuity of $1 at compound interest.

Accepted Answer

$8,000 × 0

Question 14

The process by which management plans,evaluates,and controls long-term investment decisions involving fixed assets is called

Accepted Answer

A)  absorption cost analysis 
B)  variable cost analysis 
C)  capital investment analysis 
D)  cost-volume-profit analysis 
A)  absorption cost analysis 
B)  variable cost analysis 
C)  capital investment analysis 
D)  cost-volume-profit analysis

Question 15

The rate of earnings is 6% and the cash to be received in 4 years is $20,000.The present value amount,using the following partial table of present value of $1 at compound interest is

Accepted Answer

A)  $13,660 
B)  $12,720 
C)  $15,840 
D)  $16,800 
A)  $13,660 
B)  $12,720 
C)  $15,840 
D)  $16,800

Question 16

In net present value analysis for a proposed capital investment,the expected future net cash flows are reduced to their present values.

Accepted Answer

A) True 
 B)False

Question 17

Match each definition that follows with the term (a-e)it defines.
-Recognizes that a dollar today is worth more than a dollar tomorrow

Accepted Answer

A) Capital investment analysis 
B) Time value of money concept 
C) Net present value method 
D) Average rate of return 
E) Cash payback period 
A) Capital investment analysis 
B) Time value of money concept 
C) Net present value method 
D) Average rate of return 
E) Cash payback period

Question 18

The management of Charlton Corporation is considering the purchase of a new machine costing $380,000.The company's desired rate of return is 6%.The present value factor for an annuity of $1 at interest of 6% for 5 years is 4.212.In addition to the foregoing information,use the following data in determining the acceptability of this investment: ​
  The cash payback period for this investment is

Accepted Answer

A)  4 years 
B)  5 years 
C)  19 years 
D)  3.3 years 
A)  4 years 
B)  5 years 
C)  19 years 
D)  3.3 years

Question 19

The amount of the estimated average income for a proposed investment of $90,000 in a fixed asset,giving effect to depreciation (straight-line method),with a useful life of 4 years,no residual value,and an expected total income yield of $25,300,is

Accepted Answer

A)  $12,650 
B)  $25,300 
C)  $6,325 
D)  $45,000 
A)  $12,650 
B)  $25,300 
C)  $6,325 
D)  $45,000

Question 20

T-Bone company is contemplating investing in a new piece of manufacturing machinery.The amount to be invested is $150,000.The present value of the future cash flows is $141,000.Should the company invest in this project?

Accepted Answer

A)  yes,because net present value is +$9,000 
B)  yes,because net present value is -$9,000 
C)  no,because net present value is +$9,000 
D)  no,because net present value is -$9,000 
A)  yes,because net present value is +$9,000 
B)  yes,because net present value is -$9,000 
C)  no,because net present value is +$9,000 
D)  no,because net present value is -$9,000

Exam 25: Capital Investment Analysis

A qualitative characteristic that may impact upon capital investment analysis is employee morale.

The rate of earnings is 12% and the cash to be received in 2 years is $10,000.Determine the present value amount,using the following partial table of present value of $1 at compound interest: ​ ​

Which of the following are present value methods of analyzing capital investment proposals?

Which of the following is an advantage of the cash payback method?

Which of the following provisions of the Internal Revenue Code can be used to reduce the amount of the income tax expense arising from capital investment projects?

If in evaluating a proposal by use of the net present value method there is an excess of the present value of future cash inflows over the amount to be invested,the rate of return on the proposal is less than the rate used in the analysis.

Using the tables above,what would be the present value of $8,000 to be received 1 year from today,assuming an earnings rate of 12%?

The cash payback method can be used only when net cash inflows are the same for each period.

Match each definition that follows with the term (a-f)it defines. -The length of time it will take to recover through cash inflows the dollars of a capital outlay

The anticipated purchase of a fixed asset for $400,000,with a useful life of 5 years and no residual value,is expected to yield total net income of $200,000 for the 5 years.The expected average rate of return on investment is 25.0%.

The process by which management plans,evaluates,and controls long-term investment decisions involving fixed assets is called capital investment analysis.

What is the present value of $8,000 to be received at the end of 6-years if the required rate of return is 15%? Below is a table for the present value of $1 at compound interest. ​ Below is a table for the present value of an annuity of $1 at compound interest.

The process by which management plans,evaluates,and controls long-term investment decisions involving fixed assets is called

The rate of earnings is 6% and the cash to be received in 4 years is $20,000.The present value amount,using the following partial table of present value of $1 at compound interest is

In net present value analysis for a proposed capital investment,the expected future net cash flows are reduced to their present values.

Match each definition that follows with the term (a-e)it defines. -Recognizes that a dollar today is worth more than a dollar tomorrow

The amount of the estimated average income for a proposed investment of $90,000 in a fixed asset,giving effect to depreciation (straight-line method),with a useful life of 4 years,no residual value,and an expected total income yield of $25,300,is

T-Bone company is contemplating investing in a new piece of manufacturing machinery.The amount to be invested is $150,000.The present value of the future cash flows is $141,000.Should the company invest in this project?

Introduction to Accounting and Business

Analyzing Transactions

The Adjusting Process

Completing the Accounting Cycle

Accounting for Merchandising Businesses

Inventories

Internal Control and Cash

Receivables

Long-Term Assets: Fixed and Intangible

Liabilities: Current,installment Notes,and Contingencies

Liabilities: Bonds Payable

Corporations: Organization, stock Transactions, and Dividends

Statement of Cash Flows

Financial Statement Analysis

Introduction to Managerial Accounting

Job Order Costing

Process Cost Systems

Activity-Based Costing

Cost-Volume-Profit Analysis

Variable Costing for Management Analysis

Budgeting

Evaluating Variances From Standard Costs

Evaluating Decentralized Operations

Differential Analysis and Product Pricing

Lean Manufacturing and Activity Analysis

Filters

The rate of earnings is 12% and the cash to be received in 2 years is $10,000.Determine the present value amount,using the following partial table of present value of $1 at compound interest:

What is the present value of $8,000 to be received at the end of 6-years if the required rate of return is 15%? Below is a table for the present value of $1 at compound interest. Below is a table for the present value of an annuity of $1 at compound interest.