Question 1

Which of the following are two methods of analyzing capital investment proposals that both ignore present value?

Accepted Answer

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

Question 2

The computations involved in the net present value method of analyzing capital investment proposals are less involved than those for the average rate of return method.

Accepted Answer

A) True 
 B)False

Question 3

The formula for calculating the present value factor for an annuity of $1 is

Accepted Answer

A)  Amount to be invested / Annual average net income 
B)  Annual net cash flow / Amount to be invested 
C)  Annual average net income / Amount to be invested 
D)  Amount to be invested / Equal annual net cash flows 
A)  Amount to be invested / Annual average net income 
B)  Annual net cash flow / Amount to be invested 
C)  Annual average net income / Amount to be invested 
D)  Amount to be invested / Equal annual net cash flows

Question 4

A company is considering purchasing a machine for $21,000.The machine will generate income from operations of $2,000; annual net cash flows from the machine will be $3,500.The payback period for the new machine is 10.5 years.

Accepted Answer

A) True 
 B)False

Question 5

Average rate of return equals average investment divided by estimated average annual income.

Accepted Answer

A) True 
 B)False

Question 6

A qualitative characteristic that may impact upon capital investment analysis is manufacturing flexibility.

Accepted Answer

A) True 
 B)False

Question 7

The process by which management allocates available investment funds among competing capital investment proposals is termed capital rationing.

Accepted Answer

A) True 
 B)False

Question 8

The methods of evaluating capital investment proposals can be separated into two general groups-present value methods and

Accepted Answer

A)  past value methods 
B)  straight-line methods 
C)  reducing value methods 
D)  methods that ignore present value 
A)  past value methods 
B)  straight-line methods 
C)  reducing value methods 
D)  methods that ignore present value

Question 9

A project has estimated annual cash flows of $90,000 for 3 years and is estimated to cost $250,000.Assume a minimum acceptable rate of return of 10%.Using the following tables,determine the (a)net present value of the project and (b)the present value index,rounded to two decimal places.
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

(a)$(26,170)[($90,00

Question 10

Proposals A and B each cost $600,000 and have 5-year lives.Proposal A is expected to provide equal annual net cash flows of $159,000,while the net cash flows for Proposal B are as follows:
​
   Determine the cash payback period for each proposal.Round answers to two decimal places.

Accepted Answer

Proposal A:$600,000 / $159,000

Question 11

A company is planning to purchase a machine that will cost $24,000,have a 6-year life,and have no salvage value.The company expects to sell the machine's output of 3,000 units evenly throughout each year.Total income over the life of the machine is estimated to be $12,000.The machine will generate net cash flows per year of $6,000.The payback period for the machine is 12 years.

Accepted Answer

A) True 
 B)False

Question 12

If in evaluating a proposal by use of the net present value method there is a deficiency of the present value of future cash inflows over the amount to be invested,the proposal should be accepted.

Accepted Answer

A) True 
 B)False

Question 13

Heidi Company is considering the acquisition of a machine that costs $420,000.The machine is expected to have a useful life of 6 years,a negligible residual value,an annual net cash flow of $120,000,and annual operating income of $83,721.What is the estimated cash payback period for the machine?

Accepted Answer

A)  3.5 years 
B)  5 years 
C)  5.1 years 
D)  4 years 
A)  3.5 years 
B)  5 years 
C)  5.1 years 
D)  4 years

Question 14

Identify four capital investment evaluation methods discussed in the chapter and discuss the strengths and weaknesses of each method.

Accepted Answer

The four capital investment models discu

Question 15

In capital rationing,alternative proposals that survive initial and secondary screening are normally evaluated in terms of:

Accepted Answer

A)  present value 
B)  nonfinancial factors 
C)  maximum cost 
D)  net cash flow 
A)  present value 
B)  nonfinancial factors 
C)  maximum cost 
D)  net cash flow

Question 16

Using the tables above,what would be the internal rate of return of an investment of $210,600 that would generate an annual cash inflow of $50,000 for the next 5 years?

Accepted Answer

A)  6% 
B)  10% 
C)  12% 
D)  14% 
A)  6% 
B)  10% 
C)  12% 
D)  14%

Question 17

A qualitative characteristic that may impact upon capital investment analysis is manufacturing productivity.

Accepted Answer

A) True 
 B)False

Question 18

The methods of evaluating capital investment proposals can be grouped into two general categories that can be referred to as (1)average rate of return and (2)cash payback methods.

Accepted Answer

A) True 
 B)False

Question 19

The amount of the average investment for a proposed investment of $120,000 in a fixed asset with a useful life of 4 years,straight-line depreciation,no residual value,and an expected total net income of $21,600 for the 4 years,is

Accepted Answer

A)  $30,000 
B)  $21,600 
C)  $5,400 
D)  $60,000 
A)  $30,000 
B)  $21,600 
C)  $5,400 
D)  $60,000

Question 20

Using the tables above,what would be the internal rate of return of an investment that required an investment of $227,460 and would generate an annual cash inflow of $60,000 for the next 5 years?

Accepted Answer

A)  6% 
B)  10% 
C)  12% 
D)  cannot be determined from the data given 
A)  6% 
B)  10% 
C)  12% 
D)  cannot be determined from the data given

Exam 25: Capital Investment Analysis

Which of the following are two methods of analyzing capital investment proposals that both ignore present value?

The computations involved in the net present value method of analyzing capital investment proposals are less involved than those for the average rate of return method.

The formula for calculating the present value factor for an annuity of $1 is

A company is considering purchasing a machine for $21,000.The machine will generate income from operations of $2,000; annual net cash flows from the machine will be $3,500.The payback period for the new machine is 10.5 years.

Average rate of return equals average investment divided by estimated average annual income.

A qualitative characteristic that may impact upon capital investment analysis is manufacturing flexibility.

The process by which management allocates available investment funds among competing capital investment proposals is termed capital rationing.

The methods of evaluating capital investment proposals can be separated into two general groups-present value methods and

Proposals A and B each cost $600,000 and have 5-year lives.Proposal A is expected to provide equal annual net cash flows of $159,000,while the net cash flows for Proposal B are as follows: ​ Determine the cash payback period for each proposal.Round answers to two decimal places.

If in evaluating a proposal by use of the net present value method there is a deficiency of the present value of future cash inflows over the amount to be invested,the proposal should be accepted.

Heidi Company is considering the acquisition of a machine that costs $420,000.The machine is expected to have a useful life of 6 years,a negligible residual value,an annual net cash flow of $120,000,and annual operating income of $83,721.What is the estimated cash payback period for the machine?

Identify four capital investment evaluation methods discussed in the chapter and discuss the strengths and weaknesses of each method.

In capital rationing,alternative proposals that survive initial and secondary screening are normally evaluated in terms of:

Using the tables above,what would be the internal rate of return of an investment of $210,600 that would generate an annual cash inflow of $50,000 for the next 5 years?

A qualitative characteristic that may impact upon capital investment analysis is manufacturing productivity.

The methods of evaluating capital investment proposals can be grouped into two general categories that can be referred to as (1)average rate of return and (2)cash payback methods.

The amount of the average investment for a proposed investment of $120,000 in a fixed asset with a useful life of 4 years,straight-line depreciation,no residual value,and an expected total net income of $21,600 for the 4 years,is

Using the tables above,what would be the internal rate of return of an investment that required an investment of $227,460 and would generate an annual cash inflow of $60,000 for the next 5 years?

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

Proposals A and B each cost $600,000 and have 5-year lives.Proposal A is expected to provide equal annual net cash flows of $159,000,while the net cash flows for Proposal B are as follows: Determine the cash payback period for each proposal.Round answers to two decimal places.