Question 1

Capital investment decisions are decisions about when and how much to spend on capital facilities and other long-term projects.

Accepted Answer

A) True 
 B)False

Question 2

The point at which products are separated in a joint production process is the

Accepted Answer

A) split-off point. 
B) joint product point. 
C) separation point. 
D) breakeven point. 
A) split-off point. 
B) joint product point. 
C) separation point. 
D) breakeven point.

Question 3

The cost of debt,the cost of preferred stock,the cost of common stock,and the cost of retained earnings are the components of cost of capital.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) deducted from the price paid for the new building. 
B) viewed as a cash outflow. 
C) added to the price of the new building. 
D) irrelevant to the decision. 
A) deducted from the price paid for the new building. 
B) viewed as a cash outflow. 
C) added to the price of the new building. 
D) irrelevant to the decision.

Question 5

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 6

The following data have been gathered for a capital investment decision.The amounts relate to a 14 percent discount factor.
  
a.Compute the present value of the following cash flows.Use a discount rate of 14 percent.
  
b.What would have been the present value of the cash flows if they were received in equal installments over the five-year period at the same discount rate?
c.If the answers to parts (a)and (b)differ,explain the reason(s)why.

Accepted Answer

a.
@#IMG-DLM&
b.$240,000 @#LAT-DLM&  5 = $48,000 per year
$4

Question 7

A segment margin is a segment's sales revenue minus its direct variable costs and direct fixed costs traceable to the segment.

Accepted Answer

A) True 
 B)False

Question 8

The term incremental cost refers to

Accepted Answer

A) the difference in total costs between alternatives. 
B) a cost that does not entail any dollar outlay but that is relevant to the decision-making process. 
C) the profit forgone by selecting one choice instead of another. 
D) a cost that constitutes expenses to be incurred even though there is no activity. 
A) the difference in total costs between alternatives. 
B) a cost that does not entail any dollar outlay but that is relevant to the decision-making process. 
C) the profit forgone by selecting one choice instead of another. 
D) a cost that constitutes expenses to be incurred even though there is no activity.

Question 9

The fixed costs that are traceable to the segments are called common costs.

Accepted Answer

A) True 
 B)False

Question 10

The payback period is based on a net present value of cash flows.

Accepted Answer

A) True 
 B)False

Question 11

Many management decisions are unique and hence incompatible with strict rules,steps,or timetables.

Accepted Answer

A) True 
 B)False

Question 12

Management of the Krausse Savings and Loan Association is in the process of evaluating the purchase of a new check sorting machine.The model under review will cost $70,000 and will require installation costs of $10,000.Similar machines have a ten-year life,and management has estimated that this sorter will have a residual value of $10,000 at the end of its life.Annual cost savings to be generated by the sorter will average $14,000 over the ten-year period.Management's minimum desired rate of return is 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 check sorting machine.Support your answer.
b.If management had decided on a minimum desired before-tax rate of return of 14 percent,should the check sorting machine be purchased? Show all computations to support your answer.

Accepted Answer

a.Decision on purchase of machine,using

Question 13

Kyle Inc.manufactures automobiles.In recent past,the company started buying brake shoes from an external vendor.Which of the following decisions is made by the company in this example?

Accepted Answer

A) Special order decision 
B) Segment profitability decision 
C) Outsourcing decision 
D) Capital investment decision 
A) Special order decision 
B) Segment profitability decision 
C) Outsourcing decision 
D) Capital investment decision

Question 14

Elizabeth Pharmaceutical produces several medicines.Each compound can be sold at the split-off point or processed further.The following results apply to March:   After determining which products should be sold at the split-off point and which should be processed further,the total revenue provided by these three products would be

Accepted Answer

A) $84,000. 
B) $58,500. 
C) $77,000. 
D) $65,500. 
A) $84,000. 
B) $58,500. 
C) $77,000. 
D) $65,500.

Question 15

The fixed costs that are traceable to the segments are called:

Accepted Answer

A) common fixed costs. 
B) unavoidable fixed costs. 
C) direct fixed costs. 
D) sunk costs. 
A) common fixed costs. 
B) unavoidable fixed costs. 
C) direct fixed costs. 
D) sunk costs.

Question 16

Incremental analysis is a technique used not only by businesses but also by individuals in day-to-day activities.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Projected cash flows remain constant in each year of an asset's life.

Accepted Answer

A) True 
 B)False

Question 19

While performing an incremental analysis for outsourcing decision,information such as depreciation is not relevant.

Accepted Answer

A) True 
 B)False

Question 20

While making capital investment decisions,companies set a minimum rate of return to

Accepted Answer

A) set the maximum expected returns. 
B) guard their profitability. 
C) cover their fixed costs. 
D) comply with the government regulations. 
A) set the maximum expected returns. 
B) guard their profitability. 
C) cover their fixed costs. 
D) comply with the government regulations.

Exam 25: Short-Run Decision Analysis and Capital Budgeting

Capital investment decisions are decisions about when and how much to spend on capital facilities and other long-term projects.

The point at which products are separated in a joint production process is the

The cost of debt,the cost of preferred stock,the cost of common stock,and the cost of retained earnings are the components of cost of capital.

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

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

A segment margin is a segment's sales revenue minus its direct variable costs and direct fixed costs traceable to the segment.

The term incremental cost refers to

The fixed costs that are traceable to the segments are called common costs.

The payback period is based on a net present value of cash flows.

Many management decisions are unique and hence incompatible with strict rules,steps,or timetables.

Kyle Inc.manufactures automobiles.In recent past,the company started buying brake shoes from an external vendor.Which of the following decisions is made by the company in this example?

The fixed costs that are traceable to the segments are called:

Incremental analysis is a technique used not only by businesses but also by individuals in day-to-day activities.

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

Projected cash flows remain constant in each year of an asset's life.

While performing an incremental analysis for outsourcing decision,information such as depreciation is not relevant.

While making capital investment decisions,companies set a minimum rate of return to

Accounting Principles and the Financial Statements

Analyzing and Recording Business Transactions

Adjusting the Accounts

Completing the Accounting Cycle

Foundations of Financial Reporting and the Classified Balance Sheet

Accounting for Merchandising Operations

Inventories

Cash and Internal Control

Receivables

Long -Term Assets

Current Liabilities and Fair Value Accounting

Accounting for Partnerships

Accounting for Corporations

Long Term Liabilities

The Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting and Cost Concepts

Costing Systems: Job Order Costing

Costing Systems Process Costing

Value-Based Systems: Activity-Based Costing and Lean Accounting

Cost-Volume-Profit Analysis

The Budgeting Process

Flexible Budgets and Performance Analysis

Standard Costing and Variance Analysis

Filters