Exam 24: Capital Investment Analysis

An advantage of the net present value method is that it considers the time value of money.

Which of the following is measured by the payback period method?

Capital investment analysis is also known as capital budgeting.

The supervisor of a facility has $500,000 to spend on new equipment to improve operations.How should the company proceed if the company's minimum rate of return is 14 percent and it is considering the following proposals?

The minimum rate of return on a capital investment is set by the management of a company.

Which of the following evaluation methods ignores the time value of money?

The accounting rate-of-return is calculated by dividing the cost of investment by annual net cash inflows.

An organization with several branches of a highly developed system for capital investment analysis requires that all proposals go through preliminary screening.

As part of the planning stage of management,capital investment needs are identified.

San Joaquin Manufacturing Company specializes in the production of precision tools.Management is in the process of selecting a new drill press.The press under consideration will cost $180,000 plus necessary installation charges of $25,000.Past experience indicates that the press will last for ten years and should have a residual value at the end of that period of about $15,000.Expected annual cash revenues from the press should average $66,000,and related cash operating costs should be around $30,000.Management has decided on a minimum desired before-tax rate of return of 12 percent. Present value multipliers: a.Using before-tax information and the net present value method to evaluate this capital investment,determine whether the company should purchase the drill press.Support your answer. b.If management had decided on a minimum desired before-tax rate of return of 14 percent,should the drill press be purchased? Show all computations to support your answer.

Preparing reports related to the capital investment process falls under which stage of the management process?

As part of the performing stage of management,capital investment proposals are evaluated.

Identifying capital investment needs falls under which stage of the management process?

When two or more capital investment proposals are being evaluated using the accounting rate-of-return method,the proposal that yields the lowest ratio of net income to average cost of investment is selected.

The accounting rate-of-return method considers the time value of money.

Which of the following methods uses the time value of money for capital investment analysis?

When using the accounting rate-of-return method,the net income has to be averaged over the life of the investment.

Capital investment analysis involves the evaluation of alternative proposals for large capital investments,including considerations for financing the projects.

A project with a net present value of zero should not be accepted.

Why is the book value of equipment irrelevant when considering the replacement of equipment?