Question 1

Discuss the qualitative factors that should be considered in the evaluation of proposals in addition to the quantitative factors.

Accepted Answer

The various qualitative factors that sho

Question 2

The proposals with the highest rank are funded first in the capital investment decisions.

Accepted Answer

A) True 
 B)False

Question 3

Memphis Co. is going to purchase a machine for $83,200 that will increase cash flows by $40,000 in the first year, $30,000 the second year, and $25,000 the third year. The machine will have no residual value. The minimum rate of return is 10 percent. The present value factors for the three years are 0.909, 0.826, and 0.751, respectively. The machine's actual rate of return is

Accepted Answer

A)  Unable to determine from the data given 
B)  greater than 10 percent. 
C)  less than 10 percent. 
D)  10 percent. 
A)  Unable to determine from the data given 
B)  greater than 10 percent. 
C)  less than 10 percent. 
D)  10 percent.

Question 4

Assuming revenues are received in cash and expenses, except for depreciation, are paid in cash, net cash flows for a period are equal to

Accepted Answer

A)  net income minus depreciation expense. 
B)  net income. 
C)  net income plus depreciation expense. 
D)  net income plus income tax expense. 
A)  net income minus depreciation expense. 
B)  net income. 
C)  net income plus depreciation expense. 
D)  net income plus income tax expense.

Question 5

The accounting rate of return is calculated by dividing the project's investment by its net income.

Accepted Answer

A) True 
 B)False

Question 6

Boston Corp. is evaluating three projects. Each project will return a total of $600,000 to the company in cash flows over a three-year period. The cash flows for the three projects are as follows: $$\begin{array} { | l c c c c } 
\hline& \text { Year 1 } & \text { Year 2 } & \text { Year 3 } & \text { Tatal } \
\text { Praject A } & \$ 300,000 & \$ 200,000 & \$ 100,000 & \$ 600,000 \
\text { Praject B } & 200,000 & 200,000 & 200,000 & 600,000 \
\text { Praject C } & 100,000 & 200,000 & 300,000 & 600,000 \
\hline
\end{array}$$ Which project represents the best investment for Boston?

Accepted Answer

A)  Project A 
B)  Project B 
C)  Project C 
D)  All projects are equally good investments. 
A)  Project A 
B)  Project B 
C)  Project C 
D)  All projects are equally good investments.

Question 7

Various parts of the organization that are involved in capital investment analysis include all of the following except

Accepted Answer

A)  financial analysts 
B)  marketing specialists 
C)  creditors 
D)  managers 
A)  financial analysts 
B)  marketing specialists 
C)  creditors 
D)  managers

Question 8

Competition, availability and training of employees, anticipated future technological improvements are some of the examples of qualitative factors.

Accepted Answer

A) True 
 B)False

Question 9

Decisions to install new equipment, replace old equipment, and purchase or construct a new building are examples of

Accepted Answer

A)  capital investment decisions. 
B)  incremental analysis. 
C)  sales mix analysis. 
D)  direct costing decisions. 
A)  capital investment decisions. 
B)  incremental analysis. 
C)  sales mix analysis. 
D)  direct costing decisions.

Question 10

The Pink Thai Restaurant is considering the purchase of a second oven that would accommodate its new take-out business. The oven would cost $17,000, have an estimated $5,000 residual value, and would be kept for six years. Annual net cash inflows would increase by $3,960. Pink Thai uses the straight-line method of depreciation. Using the above facts and the present value factors given below, calculate (a) the payback period (if necessary, round off and carry to one decimal place), (b) the accounting rate of return (if necessary, round off and carry to one decimal place), and (c) the oven's net present value (use parentheses to indicate a negative net present value) based on a 15 percent minimum desired rate of return (if necessary, round to the nearest dollar).
 $$\begin{array} { c c c } 
\text { End af Perind } & \text { Present Value of } \begin{array} { c } 
\text { Prasient Value af an } \
\text { Anunuit } \
\text { at } 15 \text { percent }
\end{array} & \begin{array} { c } 
\text { at } \
\text { at 15 percent }
\end{array} \
1 & .870 & .870 \
2 & .756 & 1.626 \
3 & .658 & 2.284 \
4 & .572 & 2.856 \
5 & .497 & 3.353 \
6 & .432 & 3.785
\end{array}$$

Accepted Answer

a. 4.3 years ($17,00

Question 11

When using the net present value method to compare keeping an old building or disposing of it and acquiring a new building, the current cash residual value of the old building should be

Accepted Answer

A)  a subtraction from the price paid for the new building. 
B)  viewed as a cash flow. 
C)  an addition to the price paid for the new building. 
D)  irrelevant to the decision. 
A)  a subtraction from the price paid for the new building. 
B)  viewed as a cash flow. 
C)  an addition to the price paid for the new building. 
D)  irrelevant to the decision.

Question 12

What role do marketing specialists play in capital investment analysis?

Accepted Answer

A)  They predict sales trends and new product demands. 
B)  They provide estimates as to how much money can be spent on capital facilities. 
C)  They supply a target cost of capital. 
D)  They designate the desired rate of return. 
A)  They predict sales trends and new product demands. 
B)  They provide estimates as to how much money can be spent on capital facilities. 
C)  They supply a target cost of capital. 
D)  They designate the desired rate of return.

Question 13

The purpose of establishing a desired rate of return on investment is to set a point below which the best alternative will be considered acceptable.

Accepted Answer

A) True 
 B)False

Question 14

The payback period is based on a project's net income.

Accepted Answer

A) True 
 B)False

Question 15

Seattle, Inc., is contemplating a project that costs $180,000. Expectations are that annual cash revenues will be $70,000 and annual expenses (including depreciation) will total $30,000. The project has a six-year useful life and a residual value of $30,000. Assume Seattle Inc. uses straight line method of depreciation. The accounting rate of return for the project is

Accepted Answer

A)  53.3 percent. 
B)  22.2 percent. 
C)  66.7 percent. 
D)  38.1 percent. 
A)  53.3 percent. 
B)  22.2 percent. 
C)  66.7 percent. 
D)  38.1 percent.

Question 16

The components of cost of capital include all of the following except

Accepted Answer

A)  the cost of debt 
B)  the cost of preferred stock 
C)  the cost of common stock and retained earnings 
D)  the minimum rate of return 
A)  the cost of debt 
B)  the cost of preferred stock 
C)  the cost of common stock and retained earnings 
D)  the minimum rate of return

Question 17

The minimum rate of return is also known as the hurdle rate.

Accepted Answer

A) True 
 B)False

Question 18

Qualitative factors will not be considered in the evaluation of capital investment proposals.

Accepted Answer

A) True 
 B)False

Question 19

The method of project selection that brings the time value of money into capital investment analysis is the

Accepted Answer

A)  rate of return on initial investment. 
B)  net present value method. 
C)  payback method. 
D)  accounting rate-of-return method. 
A)  rate of return on initial investment. 
B)  net present value method. 
C)  payback method. 
D)  accounting rate-of-return method.

Question 20

Special Industries is considering investing $40 million in plant expansion. Management needs to know the average cost of capital to use in evaluating this capital investment decision. The company's capital structure consists of $4,000,000 of debt at 3 percent interest and $6,000,000 of stockholders' equity at 4 percent. What is the average cost of capital of Special Industries.

Accepted Answer

The cost of capital

Exam 28: Capital Investment Analysis

Discuss the qualitative factors that should be considered in the evaluation of proposals in addition to the quantitative factors.

The proposals with the highest rank are funded first in the capital investment decisions.

Assuming revenues are received in cash and expenses, except for depreciation, are paid in cash, net cash flows for a period are equal to

The accounting rate of return is calculated by dividing the project's investment by its net income.

Various parts of the organization that are involved in capital investment analysis include all of the following except

Competition, availability and training of employees, anticipated future technological improvements are some of the examples of qualitative factors.

Decisions to install new equipment, replace old equipment, and purchase or construct a new building are examples of

When using the net present value method to compare keeping an old building or disposing of it and acquiring a new building, the current cash residual value of the old building should be

What role do marketing specialists play in capital investment analysis?

The purpose of establishing a desired rate of return on investment is to set a point below which the best alternative will be considered acceptable.

The payback period is based on a project's net income.

The components of cost of capital include all of the following except

The minimum rate of return is also known as the hurdle rate.

Qualitative factors will not be considered in the evaluation of capital investment proposals.

The method of project selection that brings the time value of money into capital investment analysis is the

Uses of Accounting Information and the Financial Statements

Analyzing Business Transactions

Measuring Business Income

Completing the Accounting Cycle

Financial Reporting and Analysis

The Operating Cycle and Merchandising Operations

Internal Control

Inventories

Cash and Receivables

Current Liabilities and Fair Value Accounting

Long Term Assets

Contributed Capital

Long Term Liabilities

The Corporate Income Statement and the Statement of Stockholders Equity

The Statement of Cash Flows

Financial Performance Measurement

Partnerships

The Changing Business Environment-A Managers Pers

Cost Concepts and Cost Allocation

Costing Systems: Job Order Costing

Costing Systems Process Costing

Activity-Based Systems-Abm and Lean

Cost Behavior Analysis

The Budgeting Process

Performance Management and Evaluation

Standard Costing and Variance Analysis

Short Run Decision Analysis

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