Question 1

All of the following qualitative considerations may impact upon capital investment analysis except:

Accepted Answer

A)  manufacturing productivity 
B)  manufacturing sunk cost 
C)  manufacturing flexibility 
D)  market opportunities 
A)  manufacturing productivity 
B)  manufacturing sunk cost 
C)  manufacturing flexibility 
D)  market opportunities

Question 2

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

Accepted Answer

A)  $13,316 
B)  $6,830 
C)  $7,510 
D)  $8,260 
A)  $13,316 
B)  $6,830 
C)  $7,510 
D)  $8,260

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

A company is planning to purchase a machine that will cost $24,000, have a six-year life, and have no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. Total income over the life of the machine is estimated to be $12,000. The machine will generate cash flows per year of $6,000. The payback period for the machine is 4 years.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

A company is considering purchasing a machine for $21,000. The machine will generate income from operations of $2,000; annual cash flows from the machine will be $3,500. The payback period for the new machine is 10.5 years.

Accepted Answer

A) True 
 B)False

Question 7

If in evaluating a proposal by use of the net present value method there is an excess of the present value of future cash inflows over the amount to be invested, the rate of return on the proposal is less than the rate used in the analysis.

Accepted Answer

A) True 
 B)False

Question 8

In net present value analysis for a proposed capital investment, the expected future net cash flows are averaged and then reduced to their present values.

Accepted Answer

A) True 
 B)False

Question 9

Proposals L and K each cost $500,000, have 6-year lives, and have expected total cash flows of $720,000. Proposal L is expected to provide equal annual net cash flows of $140,000, while the net cash flows for Proposal K are as follows:
   Determine the cash payback period for each proposal. Round your answers to two decimal places.

Accepted Answer

Proposal L: $500,000/$140,000

Question 10

The expected average rate of return for a proposed investment of $600,000 in a fixed asset, with a useful life of four years, straight-line depreciation, no residual value, and an expected total net income of $240,000 for the 4 years, is:

Accepted Answer

A)  40% 
B)  20% 
C)  60% 
D)  24% 
A)  40% 
B)  20% 
C)  60% 
D)  24%

Question 11

A project has estimated annual net cash flows of $90,000. It is estimated to cost $324,000. Determine the cash payback period.

Accepted Answer

3.6 years

Question 12

If a proposed expenditure of $80,000 for a fixed asset with a 4-year life has an annual expected net cash flow and net income of $32,000 and $12,000, respectively, the cash payback period is 4 years.

Accepted Answer

A) True 
 B)False

Question 13

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.

Accepted Answer

A) True 
 B)False

Question 14

The computations involved in the net present value method of analyzing capital investment proposals are less involved than those for the average rate of return method.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is a present value method of analyzing capital investment proposals?

Accepted Answer

A)  Average rate of return 
B)  Cash payback method 
C)  Accounting rate of return 
D)  Net present value 
A)  Average rate of return 
B)  Cash payback method 
C)  Accounting rate of return 
D)  Net present value

Question 16

Below is a table for the present value of $1 at Compound interest.  Below is a table for the present value of an annuity of $1 at compound interest.
  Using the tables above, what would be the internal rate of return of an investment of $294,840 that would generate an annual cash inflow of $70,000 for the next 5 years?

Accepted Answer

A)  6% 
B)  10% 
C)  12% 
D)  cannot be determined from the data given. 
A)  6% 
B)  10% 
C)  12% 
D)  cannot be determined from the data given.

Question 17

The methods of evaluating capital investment proposals can be grouped into two general categories that can be referred to as (1) methods that ignore present value and (2) present values methods.

Accepted Answer

A) True 
 B)False

Question 18

The internal rate of return method is used to analyze a $946,250 capital investment proposal with annual net cash flows of $250,000 for each of the six years of its useful life.

Accepted Answer

The answer of The internal rate of return method is...

Question 19

Below is a table for the present value of $1 at compound interest.  Below is a table for the present value of an annuity of $1 at compound interest.
  Using the tables above, what is the present value of $6,000 (rounded to the nearest dollar) to be received at the end of each of the next 4 years, assuming an earnings rate of 10%?

Accepted Answer

A)  $20,790 
B)  $19,020 
C)  $14,412 
D)  $25,272 
A)  $20,790 
B)  $19,020 
C)  $14,412 
D)  $25,272

Question 20

Which of the following are present value methods of analyzing capital investment proposals?

Accepted Answer

A)  Internal rate of return and average rate of return 
B)  Average rate of return and net present value 
C)  Net present value and internal rate of return 
D)  Net present value and payback 
A)  Internal rate of return and average rate of return 
B)  Average rate of return and net present value 
C)  Net present value and internal rate of return 
D)  Net present value and payback

Exam 25: Capital Investment Analysis

All of the following qualitative considerations may impact upon capital investment analysis except:

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

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

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

A company is considering purchasing a machine for $21,000. The machine will generate income from operations of $2,000; annual cash flows from the machine will be $3,500. The payback period for the new machine is 10.5 years.

If in evaluating a proposal by use of the net present value method there is an excess of the present value of future cash inflows over the amount to be invested, the rate of return on the proposal is less than the rate used in the analysis.

In net present value analysis for a proposed capital investment, the expected future net cash flows are averaged and then reduced to their present values.

The expected average rate of return for a proposed investment of $600,000 in a fixed asset, with a useful life of four years, straight-line depreciation, no residual value, and an expected total net income of $240,000 for the 4 years, is:

A project has estimated annual net cash flows of $90,000. It is estimated to cost $324,000. Determine the cash payback period.

If a proposed expenditure of $80,000 for a fixed asset with a 4-year life has an annual expected net cash flow and net income of $32,000 and $12,000, respectively, the cash payback period is 4 years.

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 computations involved in the net present value method of analyzing capital investment proposals are less involved than those for the average rate of return method.

Which of the following is a present value method of analyzing capital investment proposals?

The methods of evaluating capital investment proposals can be grouped into two general categories that can be referred to as (1) methods that ignore present value and (2) present values methods.

The internal rate of return method is used to analyze a $946,250 capital investment proposal with annual net cash flows of $250,000 for each of the six years of its useful life.

Which of the following are present value methods of analyzing capital investment proposals?

Introduction to Accounting and Business

Analyzing Transactions

The Adjusting Process

Completing the Accounting Cycle

Accounting for Merchandising Businesses

Inventories

Sarbanes-Oxley, Internal Control, and Cash

Receivables

Fixed Assets and Intangible Assets

Current Liabilities and Payroll

Corporations: Organization, Stock Transactions, and Dividends

Long-Term Liabilities: Bonds and Notes

Investments and Fair Value Accounting

Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting Concepts and Principles

Job Order Costing

Process Cost Systems

Cost Behavior and Cost-Volume-Profit Analysis

Variable Costing for Management Analysis

Budgeting

Performance Evaluation Using Variances From Standard Costs

Performance Evaluation for Decentralized Operations

Differential Analysis and Product Pricing

Cost Allocation and Activity-Based Costing

Cost Management for Just-In-Time Environments

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