Exam 26: Capital Investment Decisions

Norton Manufacturing is considering the following two investment proposals: Compute the present value of the future cash inflows from Proposal Y. Present value of an ordinary annuity of $1:

Managers generally use payback as the sole method for deciding whether to invest in an asset.

The net present value and internal rate of return methods are appropriate for longer-term investments because they ignore the time value of money.

Most capital budgeting methods focus on accrual-based income.

Sensitivity analysis is a technique that ________.

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

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

The internal rate of return (IRR)is the rate of return,based on discounted cash flows,of a capital investment.

The accounting rate of return also is known as the average rate of return or annual rate of return.

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

The residual value is discounted as a single lump sum because it will be received only once,when the asset is sold.

Net present value is defined as the difference between the present value of the investment's net cash inflows and the investment's initial cost.

Tampa Corporation is considering an investment proposal that will require an initial outlay of $820,000 and would yield yearly cash inflows of $216,000 for nine years.The company uses a discount rate of 10%.What is the NPV of the investment? Present value of an ordinary annuity of $1:

Lobel Machines Company is evaluating an investment of $1,550,000 which will yield net cash inflows of $220,672 per year for 10 years with no residual value.What is the internal rate of return? Present value of ordinary annuity of $1:

Yates,Inc.is evaluating two possible investments in depreciable plant assets.The company uses the straight-line method of depreciation.The following information is available: Compute the payback period for each investment.Show your calculations and round to one decimal place.

The acquisition or construction of a capital asset is known as a capital investment.

Caliber Lawnmowers is considering the purchase of a new machine costing $804,000.The company's management is estimating that the new machine will generate additional cash flows of $180,000 a year for ten years and have a residual value of $62,000 at the end of ten years.What is the machine's payback period? (Round your answer to two decimal places. )

The following formula is used to compute the present value of a lump sum: Future value = Present value × PV factor for i = X%,n = X periods

Compound interest assumes that all interest earned will remain invested and earn additional interest at the same interest rate.

Cortes Cargo,Inc.is considering three investment opportunities with the following payback periods: Use the decision rule for payback to rank the projects from most desirable to least desirable,all else being equal.