Question 1

A disadvantage of the payback period is that it ignores the time value of money.

Accepted Answer

A) True 
 B)False  True

Question 2

Diamond Company is considering the purchase of a new machine for $80,000.The machine would generate an annual cash flow of $14,767 for 6 years.At the end of six years, the machine would have no salvage value.The company's cost of capital is 10%.The company uses straight-line depreciation. ​
What is the internal rate of return for the machine rounded to the nearest percent? (Note: Round the discount factor to three decimal places.)

Accepted Answer

A)  7% 
B)  9% 
C)  5% 
D)  3% 
A)  7% 
B)  9% 
C)  5% 
D)  3% D

Question 3

Present value of $1 
  Present value of an Annuity of $1
 
Morgan Clinical Practice is considering an investment in new imaging equipment that will cost $400,000.The equipment is expected to yield cash inflows of $80,000 per year for a six year period.Morgan set a required rate of return at 10%.
- What is the net present value of Project 2?

Accepted Answer

A)  $5,670 
B)  $20,000 
C)  $2,530 
D)  $24,070 
E)  $4,070 
A)  $5,670 
B)  $20,000 
C)  $2,530 
D)  $24,070 
E)  $4,070 E

Question 4

Which of the following is used to calculate the payback period?

Accepted Answer

A)  Original Investment / Annual Cash Flow 
B)  Net Profit × Annual Cash Flow 
C)  Original Investment + Annual Cash Flow 
D)  Net Profit − Annual Cash Flow 
E)  (Net Profit + Annual Cash Flow) / Annual Cash Flow 
A)  Original Investment / Annual Cash Flow 
B)  Net Profit × Annual Cash Flow 
C)  Original Investment + Annual Cash Flow 
D)  Net Profit − Annual Cash Flow 
E)  (Net Profit + Annual Cash Flow) / Annual Cash Flow

Question 5

Osler Company is considering an investment with the following data:  
 
  Depreciation will be taken on a straight-line basis over the expected life of the investment.
- 
The company requires a minimum rate of return of 4%.What is the net present value of the investment?

Accepted Answer

A)  $2,775 
B)  $202,775 
C)  $118,170 
D)  ($81,830) 
A)  $2,775 
B)  $202,775 
C)  $118,170 
D)  ($81,830)

Question 6

A key element in the capital investment process is called a postaudit.

Accepted Answer

A) True 
 B)False

Question 7

Kenner Company is considering two projects.  
 
  Present value of an Annuity of $1 in Arrears

- Suppose that Kenner Company requires a minimum rate of return of 8%.Which project is better in terms of net present value?

Accepted Answer

A)  project A with NPV of $10,585 
B)  project B with NPV of $7,756 
C)  project A with NPV of $4,210 
D)  project B with NPV of $1,212 
E)  both projects have the same NPV 
A)  project A with NPV of $10,585 
B)  project B with NPV of $7,756 
C)  project A with NPV of $4,210 
D)  project B with NPV of $1,212 
E)  both projects have the same NPV

Question 8

Kate is considering an investment in a retail shopping mall.The initial investment is $630,000.She expects to receive cash income of $90,000 a year.What is the payback period?

Accepted Answer

A)  2 years 
B)  5 years 
C)  7 years 
D)  12 years 
E)  15 years 
A)  2 years 
B)  5 years 
C)  7 years 
D)  12 years 
E)  15 years

Question 9

Match each item with the correct statement below.
-interest rate used to discount future cash flows

Accepted Answer

A) Payback period 
B) Accounting rate of return 
C) Net present value 
D) Internal rate of return 
E) Discount rate
F)Annuity
G)Post-audit
H)Compounding of interest 
A) Payback period 
B) Accounting rate of return 
C) Net present value 
D) Internal rate of return 
E) Discount rate
F)Annuity
G)Post-audit
H)Compounding of interest

Question 10

A firm is evaluating a project that has a net present value of $0 when a discount rate of 10% is used.A discount rate of 7% will result in a:

Accepted Answer

A)  negative net present value. 
B)  positive net present value. 
C)  net present value of $0. 
D)  The question cannot be answered based upon the information provided. 
A)  negative net present value. 
B)  positive net present value. 
C)  net present value of $0. 
D)  The question cannot be answered based upon the information provided.

Question 11

Projects that do not affect the cash flows of other projects are called mutually exclusive projects.

Accepted Answer

A) True 
 B)False

Question 12

Match each item with the correct statement below.
-assumes that all future cash inflows earn the required rate of return

Accepted Answer

A) Payback period 
B) Accounting rate of return 
C) Net present value 
D) Internal rate of return 
E) Discount rate
F)Annuity
G)Post-audit
H)Compounding of interest 
A) Payback period 
B) Accounting rate of return 
C) Net present value 
D) Internal rate of return 
E) Discount rate
F)Annuity
G)Post-audit
H)Compounding of interest

Question 13

How do NPV and IRR differ?

Accepted Answer

A)  NPV measures profitability in absolute terms, whereas the IRR method measures profitability in relative terms. 
B)  IRR should be used for choosing among competing, mutually exclusive projects. 
C)  NPV considers the time value of money and IRR does not. 
D)  Both NPV and IRR will generate the same decisions. 
A)  NPV measures profitability in absolute terms, whereas the IRR method measures profitability in relative terms. 
B)  IRR should be used for choosing among competing, mutually exclusive projects. 
C)  NPV considers the time value of money and IRR does not. 
D)  Both NPV and IRR will generate the same decisions.

Question 14

The ______________ is the time required for a firm to recover its original investment.

Accepted Answer

The answer of The ______________ is the time required for...

Question 15

In general terms, a sound capital investment will earn

Accepted Answer

A)  back its original capital outlay. 
B)  a return greater than existing capital investments. 
C)  back its original capital outlay and provide a reasonable return on the original investment. 
D)  back its original capital outlay by the midpoint of its useful life. 
E)  None of these. 
A)  back its original capital outlay. 
B)  a return greater than existing capital investments. 
C)  back its original capital outlay and provide a reasonable return on the original investment. 
D)  back its original capital outlay by the midpoint of its useful life. 
E)  None of these.

Question 16

For independent projects, net present value analysis and internal rate of return analysis yield the same decision.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following refers to a series of equal future cash flows?

Accepted Answer

A)  Overhead 
B)  Future earning 
C)  Annuity 
D)  The discount factor 
E)  Insurance 
A)  Overhead 
B)  Future earning 
C)  Annuity 
D)  The discount factor 
E)  Insurance

Question 18

Jerry Hall invested in a project that required an initial amount of $52,160, and returned cash inflows of $10,000 per year for 10 years.A partial table of the present value of an annuity of $1 in arrears is as follows: 
 What is the internal rate of return for this investment?

Accepted Answer

A)  8% 
B)  10% 
C)  12% 
D)  14% 
E)  16% 
A)  8% 
B)  10% 
C)  12% 
D)  14% 
E)  16%

Question 19

Elena Wallace invested $150,000 in a project that pays her an even amount per year for 10 years.The payback period is 6 years.What are Elena's yearly cash inflows from the project?

Accepted Answer

A)  $150,000 
B)  $15,000 
C)  $25,000 
D)  $90,000 
E)  Cannot be determined from this information. 
A)  $150,000 
B)  $15,000 
C)  $25,000 
D)  $90,000 
E)  Cannot be determined from this information.

Question 20

The difference between the present value of the cash inflows and the outflows associated with a project is known as the ___________________.

Accepted Answer

The answer of The difference between the present value of...

A disadvantage of the payback period is that it ignores the time value of money.

Which of the following is used to calculate the payback period?

Osler Company is considering an investment with the following data: Depreciation will be taken on a straight-line basis over the expected life of the investment. - The company requires a minimum rate of return of 4%.What is the net present value of the investment?

A key element in the capital investment process is called a postaudit.

Kenner Company is considering two projects. Present value of an Annuity of $1 in Arrears - Suppose that Kenner Company requires a minimum rate of return of 8%.Which project is better in terms of net present value?

Kate is considering an investment in a retail shopping mall.The initial investment is $630,000.She expects to receive cash income of $90,000 a year.What is the payback period?

Match each item with the correct statement below. -interest rate used to discount future cash flows

A firm is evaluating a project that has a net present value of $0 when a discount rate of 10% is used.A discount rate of 7% will result in a:

Projects that do not affect the cash flows of other projects are called mutually exclusive projects.

Match each item with the correct statement below. -assumes that all future cash inflows earn the required rate of return

How do NPV and IRR differ?

The ______________ is the time required for a firm to recover its original investment.

In general terms, a sound capital investment will earn

For independent projects, net present value analysis and internal rate of return analysis yield the same decision.

Which of the following refers to a series of equal future cash flows?

Jerry Hall invested in a project that required an initial amount of $52,160, and returned cash inflows of $10,000 per year for 10 years.A partial table of the present value of an annuity of $1 in arrears is as follows: What is the internal rate of return for this investment?

Elena Wallace invested $150,000 in a project that pays her an even amount per year for 10 years.The payback period is 6 years.What are Elena's yearly cash inflows from the project?

The difference between the present value of the cash inflows and the outflows associated with a project is known as the ___________________.

Introduction to Managerial Accounting

Basic Managerial Accounting Concepts

Cost Behavior, Cost Forecasting, and Segmented Income Statements

Job-Order Costing and Normal Cost Overhead Application

Activity-Based Costing and Management

Process Costing

Cost-Volume-Profit Analysis

Tactical Decision-Making and Relevant Costing

Profit Planning and Flexible Budgets

Standard Costing and Variance Analysis

Performance Evaluation and Decentralization

Emerging Topics in Managerial Accounting: Sustainability, Quality Cost, Lean Accounting, International Issues, Enterprise Risk Management, the Managerial Accountant in Forensicfraud Accounting

Statement of Cash Flows

Financial Statement Analysis

Filters

Exam 12: Capital Investment Decisions

A disadvantage of the payback period is that it ignores the time value of money.

Which of the following is used to calculate the payback period?

Osler Company is considering an investment with the following data: Depreciation will be taken on a straight-line basis over the expected life of the investment. - The company requires a minimum rate of return of 4%.What is the net present value of the investment?

A key element in the capital investment process is called a postaudit.

Kenner Company is considering two projects. Present value of an Annuity of $1 in Arrears - Suppose that Kenner Company requires a minimum rate of return of 8%.Which project is better in terms of net present value?

Kate is considering an investment in a retail shopping mall.The initial investment is $630,000.She expects to receive cash income of $90,000 a year.What is the payback period?

Match each item with the correct statement below. -interest rate used to discount future cash flows

A firm is evaluating a project that has a net present value of $0 when a discount rate of 10% is used.A discount rate of 7% will result in a:

Projects that do not affect the cash flows of other projects are called mutually exclusive projects.

Match each item with the correct statement below. -assumes that all future cash inflows earn the required rate of return

How do NPV and IRR differ?

The ______________ is the time required for a firm to recover its original investment.

In general terms, a sound capital investment will earn

For independent projects, net present value analysis and internal rate of return analysis yield the same decision.

Which of the following refers to a series of equal future cash flows?

Jerry Hall invested in a project that required an initial amount of $52,160, and returned cash inflows of $10,000 per year for 10 years.A partial table of the present value of an annuity of $1 in arrears is as follows: What is the internal rate of return for this investment?

Elena Wallace invested $150,000 in a project that pays her an even amount per year for 10 years.The payback period is 6 years.What are Elena's yearly cash inflows from the project?

The difference between the present value of the cash inflows and the outflows associated with a project is known as the ___________________.

Introduction to Managerial Accounting

Basic Managerial Accounting Concepts

Cost Behavior, Cost Forecasting, and Segmented Income Statements

Job-Order Costing and Normal Cost Overhead Application

Activity-Based Costing and Management

Process Costing

Cost-Volume-Profit Analysis

Tactical Decision-Making and Relevant Costing

Profit Planning and Flexible Budgets

Standard Costing and Variance Analysis

Performance Evaluation and Decentralization

Emerging Topics in Managerial Accounting: Sustainability, Quality Cost, Lean Accounting, International Issues, Enterprise Risk Management, the Managerial Accountant in Forensicfraud Accounting

Statement of Cash Flows

Financial Statement Analysis

Filters