Exam 15: Capital Investment Analysis

The expected average rate of return for a proposed investment of $3,000,000 in a fixed asset giving effect to depreciation (straight-line method)with a useful life of 20 years,no residual value,and an expected total income of $6,000,000 is

Assume in analyzing alternative proposals that Proposal F has a useful life of six years and Proposal J has a useful life of nine years.What is one widely used method that makes the proposals comparable?

The payback period is determined using which of the following formulas?

When evaluating a proposal by use of the cash payback method,if net cash flows exceed the capital investment within the time deemed acceptable by management,the proposal should be accepted.

Which method of evaluating capital investment proposals uses the concept of present value to compute a rate of return?

An anticipated purchase of equipment for $1,200,000,with a useful life of 8 years and no residual value,is expected to yield the following annual net incomes and net cash flows: What is the cash payback period?

Qualitative considerations are best evaluated using present value methods such as internal 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 income of $150,000.The expected average rate of return,giving effect to depreciation on investment,is 15%.

A qualitative characteristic that may impact upon capital investment analysis is the impact of investment proposals on product quality.

In general,present value methods of analyzing capital investments are more desirable than methods ignoring present value because

The process by which management allocates available investment funds among competing investment proposals is called

Care must be taken involving capital investment decisions since normally a long-term commitment of funds is involved and operations could be affected for many years.

The rate of earnings is 10% and the cash to be received in one year is $10,000.Determine the present value amount,using the following partial table of present value of $1 at compound interest:

The average rate of return for this investment is

All of the following qualitative considerations may impact upon capital investments analysis EXCEPT

The process by which management plans,evaluates,and controls long-term investment decisions involving fixed assets is called

Using the following partial table of present value of $1 at compound interest,determine the present value of $20,000 to be received four years hence,with earnings at the rate of 10% A year.

Using the following partial table of present value of $1 at compound interest,determine the present value of $20,000 to be received four years hence with earnings at the rate of 12% a year:

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

The process by which management allocates available investment funds among competing capital investment proposals is termed present value analysis.