Question 1

Using the tables above,what would be the present value of $15,000 to be received at the end of each of the next 2 years,assuming an earnings rate of 6%?

Accepted Answer

A)  $27,495 
B)  $26,040 
C)  $30,000 
D)  $25,350 
A)  $27,495 
B)  $26,040 
C)  $30,000 
D)  $25,350

Question 2

Periods in time that experience increasing price levels are known as periods of

Accepted Answer

A)  inflation 
B)  recession 
C)  depression 
D)  deflation 
A)  inflation 
B)  recession 
C)  depression 
D)  deflation

Question 3

The production department is proposing the purchase of an automatic insertion machine.It has identified 3 machines and has asked the accountant to analyze them to determine the best cash payback.

Accepted Answer

A)  Machine A 
B)  Machine C 
C)  Machine B 
D)  All are equal. 
A)  Machine A 
B)  Machine C 
C)  Machine B 
D)  All are equal.

Question 4

A series of equal cash flows at fixed intervals is termed a(n)

Accepted Answer

A)  present value index 
B)  price-level index 
C)  net cash flow 
D)  annuity 
A)  present value index 
B)  price-level index 
C)  net cash flow 
D)  annuity

Question 5

Match each definition that follows with the term (a-f)it defines.
-A stream of equal cash flow amounts

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 6

A company is contemplating investing in a new piece of manufacturing machinery.The amount to be invested is $210,000.The present value of the future cash flows is $225,000.The company's desired rate of return used in the present value calculations was 12%.Which of the following statements is true?

Accepted Answer

A)  The project should not be accepted because the net present value is negative. 
B)  The internal rate of return on the project is less than 12%. 
C)  The internal rate of return on the project is more than 12%. 
D)  The internal rate of return on the project is equal to 12%. 
A)  The project should not be accepted because the net present value is negative. 
B)  The internal rate of return on the project is less than 12%. 
C)  The internal rate of return on the project is more than 12%. 
D)  The internal rate of return on the project is equal to 12%.

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

A company is contemplating investing in a new piece of manufacturing machinery.The amount to be invested is $100,000.The present value of the future cash flows at the company's desired rate of return is $100,000.The IRR on the project is 12%.Which of the following statements is true?

Accepted Answer

A)  The project should not be accepted because the net present value is negative. 
B)  The desired rate of return used to calculate the present value of the future cash flows is less than 12%. 
C)  The desired rate of return used to calculate the present value of the future cash flows is more than 12%. 
D)  The desired rate of return used to calculate the present value of the future cash flows is equal to 12%. 
A)  The project should not be accepted because the net present value is negative. 
B)  The desired rate of return used to calculate the present value of the future cash flows is less than 12%. 
C)  The desired rate of return used to calculate the present value of the future cash flows is more than 12%. 
D)  The desired rate of return used to calculate the present value of the future cash flows is equal to 12%.

Question 10

Using the following partial table of present value of $1 at compound interest,the present value of $15,000 to be received 3 years hence with earnings at the rate of 6% a year is

Accepted Answer

A)  $12,600 
B)  $11,880 
C)  $13,350 
D)  $11,265 
A)  $12,600 
B)  $11,880 
C)  $13,350 
D)  $11,265

Question 11

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 rejected.

Accepted Answer

A) True 
 B)False

Question 12

The primary advantages of the average rate of return method are its ease of computation and the fact that

Accepted Answer

A)  it is especially useful to managers whose primary concern is liquidity 
B)  there is less possibility of loss from changes in economic conditions and obsolescence when the commitment is short-term 
C)  it emphasizes the amount of income earned over the life of the proposal 
D)  rankings of proposals are necessary 
A)  it is especially useful to managers whose primary concern is liquidity 
B)  there is less possibility of loss from changes in economic conditions and obsolescence when the commitment is short-term 
C)  it emphasizes the amount of income earned over the life of the proposal 
D)  rankings of proposals are necessary

Question 13

Methods that ignore present value in capital investment analysis include the average rate of return method.

Accepted Answer

A) True 
 B)False

Question 14

All of the following are factors that may complicate capital investment analysis except

Accepted Answer

A)  possible leasing alternatives 
B)  changes in price levels 
C)  sunk costs 
D)  federal income tax ramifications 
A)  possible leasing alternatives 
B)  changes in price levels 
C)  sunk costs 
D)  federal income tax ramifications

Question 15

The production department is proposing the purchase of an automatic insertion machine.It has identified 3 machines and has asked the accountant to analyze them to determine the best average rate of return.

Accepted Answer

A)  Machine B 
B)  Machine C 
C)  Machine B or C 
D)  Machine A 
A)  Machine B 
B)  Machine C 
C)  Machine B or C 
D)  Machine A

Question 16

A company is considering the purchase of a new piece of equipment for $90,000.Predicted annual net cash inflows from the investment are $36,000 (Year 1),$30,000 (Year 2),$18,000 (Year 3),$12,000 (Year 4),and $6,000 (Year 5).The average income from operations over the 5-year life is $20,400.The payback period is 3.5 years.

Accepted Answer

A) True 
 B)False

Question 17

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 $300,000 for the 5 years.The expected average rate of return is 37.5%.

Accepted Answer

A) True 
 B)False

Question 18

If a proposed expenditure of $80,000 for a fixed asset with a 4-year life has an annual expected net cash flow and net income of $32,000 and $12,000,respectively,the cash payback period is 4 years.

Accepted Answer

A) True 
 B)False

Question 19

Using the tables above,if an investment is made now for $23,500 that will generate a cash inflow of $8,000 a year for the next 4 years,what would be the net present value of the investment,assuming an earnings rate of 10%?

Accepted Answer

A)  $23,500 
B)  $16,050 
C)  $25,360 
D)  $1,860 
A)  $23,500 
B)  $16,050 
C)  $25,360 
D)  $1,860

Question 20

The present value index for this investment is

Accepted Answer

A)  1.00 
B)  0.95 
C)  1.25 
D)  1.05 
A)  1.00 
B)  0.95 
C)  1.25 
D)  1.05

Exam 25: Capital Investment Analysis

Using the tables above,what would be the present value of $15,000 to be received at the end of each of the next 2 years,assuming an earnings rate of 6%?

Periods in time that experience increasing price levels are known as periods of

The production department is proposing the purchase of an automatic insertion machine.It has identified 3 machines and has asked the accountant to analyze them to determine the best cash payback.

A series of equal cash flows at fixed intervals is termed a(n)

Match each definition that follows with the term (a-f)it defines. -A stream of equal cash flow amounts

A company is contemplating investing in a new piece of manufacturing machinery.The amount to be invested is $210,000.The present value of the future cash flows is $225,000.The company's desired rate of return used in the present value calculations was 12%.Which of the following statements is true?

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

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

A company is contemplating investing in a new piece of manufacturing machinery.The amount to be invested is $100,000.The present value of the future cash flows at the company's desired rate of return is $100,000.The IRR on the project is 12%.Which of the following statements is true?

Using the following partial table of present value of $1 at compound interest,the present value of $15,000 to be received 3 years hence with earnings at the rate of 6% a year is

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 rejected.

The primary advantages of the average rate of return method are its ease of computation and the fact that

Methods that ignore present value in capital investment analysis include the average rate of return method.

All of the following are factors that may complicate capital investment analysis except

The production department is proposing the purchase of an automatic insertion machine.It has identified 3 machines and has asked the accountant to analyze them to determine the best average rate of return.

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 $300,000 for the 5 years.The expected average rate of return is 37.5%.

If a proposed expenditure of $80,000 for a fixed asset with a 4-year life has an annual expected net cash flow and net income of $32,000 and $12,000,respectively,the cash payback period is 4 years.

Using the tables above,if an investment is made now for $23,500 that will generate a cash inflow of $8,000 a year for the next 4 years,what would be the net present value of the investment,assuming an earnings rate of 10%?

The present value index for this investment is

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

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