Question 1

Capital investments differ from stock and bond investments in that stock and bond investments can be sold in organized markets.

Accepted Answer

A) True 
 B)False

Question 2

Generally,the unadjusted rate of return should be calculated based on the average investment rather than the amount of the original investment in a depreciable asset such as equipment.

Accepted Answer

A) True 
 B)False

Question 3

Jiminez Company has two investment opportunities.Both investments cost $5,000 and will provide the following net cash flows: $$\begin{array} { l r r } 
\text { Year } & \text { Irvestrnent A } & \text { Irvestrnent B } \
1 & \mathbf {\$ 3 , 0 0 0 } & \mathbf {\$ 3 , 0 0 0 } \
2 & \mathbf { 3 , 0 0 0 } & 4,000 \
3 & \mathbf { 3 , 0 0 0 } & 2,000 \
4 & \mathbf { 3 } , 000 & 1,000
\end{array}$$ What is the total present value of Investment A's cash flows assuming an 8% minimum rate of return? (PV of $1 and PVA of $1)(Use appropriate factor(s)from the tables provided.Do not round your intermediate calculations.Round your answer to the nearest whole dollar.)

Accepted Answer

A)  $14,936. 
B)  $4,936. 
C)  $7,000. 
D)  $12,000. 
A)  $14,936. 
B)  $4,936. 
C)  $7,000. 
D)  $12,000.

Question 4

Weston Company is considering a capital project that delivers a $50,000 annual net cash flow before tax.The investment will result in annual depreciation expense of $10,000 over the project's four-year useful life.Assuming a tax rate of 40%,what amount of annual after-tax net cash flow will be provided by this project?

Accepted Answer

A)  $40,000 
B)  $16,000 
C)  $34,000 
D)  $24,000 
A)  $40,000 
B)  $16,000 
C)  $34,000 
D)  $24,000

Question 5

Investment projects A and B offer equal cash inflows over their lives,but the cash inflows for project A occur sooner than those for project B.The two projects are otherwise identical (the cost is the same,for example).Based on this information,the internal rate of return for A is lower than for B.

Accepted Answer

A) True 
 B)False

Question 6

Findell Corporation is considering two projects,A and B,and it has gathered the following estimates for the projects: $$\begin{array} { l c c } 
& \text { Project A } & \text { Project B } \
\text { Useful life } & 5 \text { years } & 5 \text { years } \
\text { Present value of cash inflows } & \$ 84,360 & \$ 55,100 \
\text { Present value of cash outflows } & \$ 77,000 & \$ 49,000
\end{array}$$ What is the net present value of cash flows for project B?

Accepted Answer

A)  $7,360 
B)  $6,100 
C)  $1,260 
D)  None of these answers are correct. 
A)  $7,360 
B)  $6,100 
C)  $1,260 
D)  None of these answers are correct.

Question 7

Select the incorrect statement regarding postaudits of capital investment decisions.

Accepted Answer

A)  A postaudit should be conducted at the end of the project. 
B)  The postaudit helps management determine whether a project that had been accepted should have been rejected. 
C)  A postaudit is only necessary for a capital investment selected using a technique that does not consider the time value of money. 
D)  The goal of a postaudit is to provide feedback that can be used to improve the accuracy of future capital investment decisions. 
A)  A postaudit should be conducted at the end of the project. 
B)  The postaudit helps management determine whether a project that had been accepted should have been rejected. 
C)  A postaudit is only necessary for a capital investment selected using a technique that does not consider the time value of money. 
D)  The goal of a postaudit is to provide feedback that can be used to improve the accuracy of future capital investment decisions.

Question 8

Joan Osborne is evaluating a potential capital investment.She has calculated the net present value using a minimum rate of return of 10%.Using this rate,the net present value is negative.What does this tell her about the rate of return expected for the project?

Accepted Answer

A)  If the net present value is negative, the expected rate of return for the project is greater than the 10% minimum or required rate of return. 
B)  If the net present value is negative, the expected rate of return for the project is less than the 10% minimum or required rate of return. 
C)  If the net present value is negative, the expected rate of return for the project is equal to the 10% minimum or required rate of return. 
D)  None of these answers are correct. 
A)  If the net present value is negative, the expected rate of return for the project is greater than the 10% minimum or required rate of return. 
B)  If the net present value is negative, the expected rate of return for the project is less than the 10% minimum or required rate of return. 
C)  If the net present value is negative, the expected rate of return for the project is equal to the 10% minimum or required rate of return. 
D)  None of these answers are correct.

Question 9

A postaudit should be performed at the end of a capital investment project to determine whether the expected results were actually achieved.

Accepted Answer

A) True 
 B)False

Question 10

The process by which management evaluates long-term investment decisions involving long-term operational assets is called:

Accepted Answer

A)  capital investment analysis. 
B)  activity based-management. 
C)  strategic business analysis. 
D)  fixed cost analysis. 
A)  capital investment analysis. 
B)  activity based-management. 
C)  strategic business analysis. 
D)  fixed cost analysis.

Question 11

Which of the following statements about postaudits is correct?

Accepted Answer

A)  A postaudit should be conducted at the time a capital investment is purchased. 
B)  The postaudit of a capital investment project should be made using the same analytical technique that was used in deciding to make the investment. 
C)  The purpose of postaudits is to improve a company's cost-volume-profit analysis. 
D)  The postaudit process uses expected cash flows and the company's cost of capital. 
A)  A postaudit should be conducted at the time a capital investment is purchased. 
B)  The postaudit of a capital investment project should be made using the same analytical technique that was used in deciding to make the investment. 
C)  The purpose of postaudits is to improve a company's cost-volume-profit analysis. 
D)  The postaudit process uses expected cash flows and the company's cost of capital.

Question 12

When calculating the present value of an ordinary annuity,it is assumed that:

Accepted Answer

A)  cash flows will be reinvested at the required rate of return. 
B)  cash flows occur at the end of each accounting period. 
C)  the investor will wait until the end of the investment period to withdraw cash flows. 
D)  cash flows will be reinvested at the required rate of return and cash flows occur at the end of each accounting period. 
A)  cash flows will be reinvested at the required rate of return. 
B)  cash flows occur at the end of each accounting period. 
C)  the investor will wait until the end of the investment period to withdraw cash flows. 
D)  cash flows will be reinvested at the required rate of return and cash flows occur at the end of each accounting period.

Question 13

Describe what is meant by the time value of money.

Accepted Answer

The time value of money concept recogniz

Question 14

Mary needs to have $20,000 one year from today.The formula to compute the amount of money that must be invested today is future value ÷ (1 − interest rate).

Accepted Answer

A) True 
 B)False

Question 15

Which of the following statements is incorrect?

Accepted Answer

A)  The further into the future a cash receipt is expected to occur, the lower is its present value. 
B)  The return on investment measures the compensation a company expects to receive from investing in capital assets. 
C)  Most companies use their cost of capital to estimate the minimum return on investment required from capital investments. 
D)  When a company invests in capital assets, it sacrifices future dollars for the opportunity to receive present dollars. 
A)  The further into the future a cash receipt is expected to occur, the lower is its present value. 
B)  The return on investment measures the compensation a company expects to receive from investing in capital assets. 
C)  Most companies use their cost of capital to estimate the minimum return on investment required from capital investments. 
D)  When a company invests in capital assets, it sacrifices future dollars for the opportunity to receive present dollars.

Question 16

A project's net present value can be found by subtracting the cost of the project from the total present value of the future cash flows generated by the project.

Accepted Answer

A) True 
 B)False

Capital investments differ from stock and bond investments in that stock and bond investments can be sold in organized markets.

Generally,the unadjusted rate of return should be calculated based on the average investment rather than the amount of the original investment in a depreciable asset such as equipment.

Investment projects A and B offer equal cash inflows over their lives,but the cash inflows for project A occur sooner than those for project B.The two projects are otherwise identical (the cost is the same,for example).Based on this information,the internal rate of return for A is lower than for B.

Select the incorrect statement regarding postaudits of capital investment decisions.

Joan Osborne is evaluating a potential capital investment.She has calculated the net present value using a minimum rate of return of 10%.Using this rate,the net present value is negative.What does this tell her about the rate of return expected for the project?

A postaudit should be performed at the end of a capital investment project to determine whether the expected results were actually achieved.

The process by which management evaluates long-term investment decisions involving long-term operational assets is called:

Which of the following statements about postaudits is correct?

When calculating the present value of an ordinary annuity,it is assumed that:

Describe what is meant by the time value of money.

Mary needs to have $20,000 one year from today.The formula to compute the amount of money that must be invested today is future value ÷ (1 − interest rate).

Which of the following statements is incorrect?

A project's net present value can be found by subtracting the cost of the project from the total present value of the future cash flows generated by the project.

Management Accounting and Corporate Governance

Cost Behavior, operating Leverage, and Profitability Analysis

Analysis of Cost, volume, and Pricing to Increase Profitability

Cost Accumulation,tracing,and Allocation

Cost Management in an Automated Business Environment: ABC, ABM, and TQM

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Responsibility Accounting

Product Costing in Service and Manufacturing Entities

Job-Order, process, and Hybrid Costing Systems

Financial Statement Analysis

Statement of Cash Flows

Filters

Exam 10: Planning for Capital Investments

Capital investments differ from stock and bond investments in that stock and bond investments can be sold in organized markets.

Generally,the unadjusted rate of return should be calculated based on the average investment rather than the amount of the original investment in a depreciable asset such as equipment.

Investment projects A and B offer equal cash inflows over their lives,but the cash inflows for project A occur sooner than those for project B.The two projects are otherwise identical (the cost is the same,for example).Based on this information,the internal rate of return for A is lower than for B.

Select the incorrect statement regarding postaudits of capital investment decisions.

Joan Osborne is evaluating a potential capital investment.She has calculated the net present value using a minimum rate of return of 10%.Using this rate,the net present value is negative.What does this tell her about the rate of return expected for the project?

A postaudit should be performed at the end of a capital investment project to determine whether the expected results were actually achieved.

The process by which management evaluates long-term investment decisions involving long-term operational assets is called:

Which of the following statements about postaudits is correct?

When calculating the present value of an ordinary annuity,it is assumed that:

Describe what is meant by the time value of money.

Mary needs to have $20,000 one year from today.The formula to compute the amount of money that must be invested today is future value ÷ (1 − interest rate).

Which of the following statements is incorrect?

A project's net present value can be found by subtracting the cost of the project from the total present value of the future cash flows generated by the project.

Management Accounting and Corporate Governance

Cost Behavior, operating Leverage, and Profitability Analysis

Analysis of Cost, volume, and Pricing to Increase Profitability

Cost Accumulation,tracing,and Allocation

Cost Management in an Automated Business Environment: ABC, ABM, and TQM

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Responsibility Accounting

Product Costing in Service and Manufacturing Entities

Job-Order, process, and Hybrid Costing Systems

Financial Statement Analysis

Statement of Cash Flows

Filters