Question 1

Which of the following best identifies the reason for using probabilities in the capital-budget decision?

Accepted Answer

A) Uncertainty. 
B) Cost of capital. 
C) Time value of money. 
D) Projects with unequal lives. 
A) Uncertainty. 
B) Cost of capital. 
C) Time value of money. 
D) Projects with unequal lives. A

Question 2

Falcon Company's most recent capital expenditure project will require an initial investment of $600,000 and is expected to generate the following cash flows:
Year 1 $100,000
Year 2 $250,000
Year 3 $250,000
Year 4 $200,000
Year 5 $100,000
Required:
If the required rate of return is 20% and taxes are ignored,what is the project's net present value?

Accepted Answer

The answer of Falcon Company's most recent capital expenditure project...

Question 3

What would the initial cash flows associated with an investment project include?

Accepted Answer

A) asset,freight and installation costs. 
B) cash proceeds from disposing of existing assets made redundant or unnecessary by the new project. 
C) income tax effect of gain(loss)on disposal of existing assets. 
D) all of the above. 
A) asset,freight and installation costs. 
B) cash proceeds from disposing of existing assets made redundant or unnecessary by the new project. 
C) income tax effect of gain(loss)on disposal of existing assets. 
D) all of the above. D

Question 4

The appropriate discount rate that analysts use in computing the present value of future cash flows is composed of a pure interest rate increased to reflect expected inflation.What is this pure rate called?

Accepted Answer

A) risk-free rate. 
B) real interest rate. 
C) nominal interest rate. 
D) none of the above. 
A) risk-free rate. 
B) real interest rate. 
C) nominal interest rate. 
D) none of the above.

Question 5

Which of the following is a useful feature of spreadsheet programs?

Accepted Answer

A) Spreadsheet programs reduce the errors in predicting the amounts of future cash flows. 
B) Spreadsheet programs reduce the errors in predicting the timing of future cash flows. 
C) Spreadsheet programs reduce the errors in predicting the discount rate. 
D) Spreadsheet programs help the user see the effect on the net present value of changes in assumptions and estimates. 
A) Spreadsheet programs reduce the errors in predicting the amounts of future cash flows. 
B) Spreadsheet programs reduce the errors in predicting the timing of future cash flows. 
C) Spreadsheet programs reduce the errors in predicting the discount rate. 
D) Spreadsheet programs help the user see the effect on the net present value of changes in assumptions and estimates.

Question 6

Justification of investments in advanced manufacturing systems is a(n)

Accepted Answer

A) easy problem. 
B) moderately-easy problem. 
C) moderately-difficult problem. 
D) difficult problem. 
A) easy problem. 
B) moderately-easy problem. 
C) moderately-difficult problem. 
D) difficult problem.

Question 7

When using the internal rate of return to evaluate investment alternatives,analysts specify which of the following?

Accepted Answer

A) applicable federal rate. 
B) cut-off rate. 
C) risk-free rate. 
D) prime rate. 
A) applicable federal rate. 
B) cut-off rate. 
C) risk-free rate. 
D) prime rate.

Question 8

When is the discount rate used?

Accepted Answer

A) When determining the applicable treasury rate. 
B) When computing the present value of future cash flows. 
C) To reduce the price of an investment. 
D) When determining the future value of the firm's cash inflows and outflows. 
A) When determining the applicable treasury rate. 
B) When computing the present value of future cash flows. 
C) To reduce the price of an investment. 
D) When determining the future value of the firm's cash inflows and outflows.

Question 9

What behavioral issues are involved in capital budgeting?

Accepted Answer

Planners cannot help but be influenced b

Question 10

Discuss the advantages of using spreadsheets including sensitivity analysis.

Accepted Answer

Some error is likely in the amount predi

Question 11

Which of the following involves deciding which long-term investments to undertake and how to finance them?

Accepted Answer

A) Operational planning. 
B) Capital budgeting. 
C) Investment planning. 
D) Continuous budgeting. 
A) Operational planning. 
B) Capital budgeting. 
C) Investment planning. 
D) Continuous budgeting.

Question 12

The decision to accept or reject an investment proposal can be made using either the internal rate of return method or the net present value method under most circumstances.The following is/are circumstance(s)that may arise where the two methods need not give the same answer and the net present value method's answer is always the correct one.

Accepted Answer

A) mutually exclusive projects. 
B) projects with different lifetimes. 
C) projects with intermixing of inflows and outflows. 
D) all of the above are possible circumstances. 
A) mutually exclusive projects. 
B) projects with different lifetimes. 
C) projects with intermixing of inflows and outflows. 
D) all of the above are possible circumstances.

Question 13

What should a firm do to reduce the temptation for planners to inflate their estimates of the benefits associated with the project to get it approved?

Accepted Answer

A) conduct regular capital investment post-audits. 
B) fire all managers who miss their cost or benefit estimates by more than 10 percent. 
C) recognize that the capital budgeting process is based on subjective estimates and that managers cannot control the actual project implementation. 
D) promote project managers that have the largest project(s)or number of employees. 
A) conduct regular capital investment post-audits. 
B) fire all managers who miss their cost or benefit estimates by more than 10 percent. 
C) recognize that the capital budgeting process is based on subjective estimates and that managers cannot control the actual project implementation. 
D) promote project managers that have the largest project(s)or number of employees.

Question 14

Which errors will likely have the largest effect on the net present value of changes in assumptions and estimates?

Accepted Answer

A) Errors in predicting the amounts of future cash flows. 
B) Errors in predicting the timing of future cash flows. 
C) Errors in predicting the discount rate. 
D) Errors in sensitivity analysis. 
A) Errors in predicting the amounts of future cash flows. 
B) Errors in predicting the timing of future cash flows. 
C) Errors in predicting the discount rate. 
D) Errors in sensitivity analysis.

Question 15

Managers are often correct that the company would benefit from advanced manufacturing technology.However,the present value of future cash flows analysis usually results in a negative net present value for the investment because of the

Accepted Answer

A) hurdle rate being set too high and there is a bias toward incremental projects. 
B) uncertainty about operating cash flows. 
C) exclusion of benefits that are difficult to quantify. 
D) all of the above. 
A) hurdle rate being set too high and there is a bias toward incremental projects. 
B) uncertainty about operating cash flows. 
C) exclusion of benefits that are difficult to quantify. 
D) all of the above.

Question 16

What is the role of capital expenditure decisions in the strategic planning process?

Accepted Answer

Strategic planning provides th

Question 17

Audits that compare the estimates made in the capital budgeting process with the actual results

Accepted Answer

A) identify what estimates were wrong. 
B) can serve as the basis to identify and reward good planners. 
C) create an environment in which planners will not be tempted to inflate their estimates of the benefits associated with the project to get it approved. 
D) all of the above. 
A) identify what estimates were wrong. 
B) can serve as the basis to identify and reward good planners. 
C) create an environment in which planners will not be tempted to inflate their estimates of the benefits associated with the project to get it approved. 
D) all of the above.

Question 18

The appropriate discount rate that analysts use in computing the present value of future cash flows is composed of a risk factor reflecting the riskiness of the project.Thus,

Accepted Answer

A) the greater a projects risk,the higher the discount rate. 
B) the Federal government has the lowest probability of default,so government bodies usually have the lowest risk premiums. 
C) a different discount rate would be used to invest a company's funds in a high-risk research and development project rather than low-risk bonds. 
D) all of the above. 
A) the greater a projects risk,the higher the discount rate. 
B) the Federal government has the lowest probability of default,so government bodies usually have the lowest risk premiums. 
C) a different discount rate would be used to invest a company's funds in a high-risk research and development project rather than low-risk bonds. 
D) all of the above.

Question 19

Which of the following is used to compute the present value of future cash flows when evaluating investments involving cash flows over time where time elapses between cash payment and receipt?

Accepted Answer

A) prime rate plus 1 point. 
B) United States Federal Reserve Interest Rate. 
C) firm's cost of capital. 
D) short-term United States Treasury Bill rate. 
A) prime rate plus 1 point. 
B) United States Federal Reserve Interest Rate. 
C) firm's cost of capital. 
D) short-term United States Treasury Bill rate.

Question 20

The appropriate discount rate that analysts use in computing the present value of future cash flows is composed of an increase reflecting the inflation expected to occur over the life of the project.Thus,

Accepted Answer

A) the higher the expected inflation,the higher should be the discount rate. 
B) the higher the expected inflation,the lower should be the discount rate. 
C) the lower the expected inflation,the higher should be the discount rate. 
D) all of the above. 
A) the higher the expected inflation,the higher should be the discount rate. 
B) the higher the expected inflation,the lower should be the discount rate. 
C) the lower the expected inflation,the higher should be the discount rate. 
D) all of the above.

Which of the following best identifies the reason for using probabilities in the capital-budget decision?

What would the initial cash flows associated with an investment project include?

The appropriate discount rate that analysts use in computing the present value of future cash flows is composed of a pure interest rate increased to reflect expected inflation.What is this pure rate called?

Which of the following is a useful feature of spreadsheet programs?

Justification of investments in advanced manufacturing systems is a(n)

When using the internal rate of return to evaluate investment alternatives,analysts specify which of the following?

When is the discount rate used?

What behavioral issues are involved in capital budgeting?

Discuss the advantages of using spreadsheets including sensitivity analysis.

Which of the following involves deciding which long-term investments to undertake and how to finance them?

What should a firm do to reduce the temptation for planners to inflate their estimates of the benefits associated with the project to get it approved?

Which errors will likely have the largest effect on the net present value of changes in assumptions and estimates?

Managers are often correct that the company would benefit from advanced manufacturing technology.However,the present value of future cash flows analysis usually results in a negative net present value for the investment because of the

What is the role of capital expenditure decisions in the strategic planning process?

Audits that compare the estimates made in the capital budgeting process with the actual results

The appropriate discount rate that analysts use in computing the present value of future cash flows is composed of a risk factor reflecting the riskiness of the project.Thus,

Which of the following is used to compute the present value of future cash flows when evaluating investments involving cash flows over time where time elapses between cash payment and receipt?

The appropriate discount rate that analysts use in computing the present value of future cash flows is composed of an increase reflecting the inflation expected to occur over the life of the project.Thus,

Fundamental Concepts

Measuring Product Costs

Activity-Based Management

Strategic Management of Costs,quality,and Time

Cost Drivers and Cost Behavior

Financial Modeling for Short-Term Decision Making

Differential Cost Analysis for Operating Decisions

Profit Planning and Budgeting

Profit and Cost Center Performance Evaluation

Investment Center Performance Evaluation

Incentive Issues

Allocating Costs to Responsibility Centers

Filters

Exam 8: Capital Expenditure Decisions

Which of the following best identifies the reason for using probabilities in the capital-budget decision?

What would the initial cash flows associated with an investment project include?

The appropriate discount rate that analysts use in computing the present value of future cash flows is composed of a pure interest rate increased to reflect expected inflation.What is this pure rate called?

Which of the following is a useful feature of spreadsheet programs?

Justification of investments in advanced manufacturing systems is a(n)

When using the internal rate of return to evaluate investment alternatives,analysts specify which of the following?

When is the discount rate used?

What behavioral issues are involved in capital budgeting?

Discuss the advantages of using spreadsheets including sensitivity analysis.

Which of the following involves deciding which long-term investments to undertake and how to finance them?

What should a firm do to reduce the temptation for planners to inflate their estimates of the benefits associated with the project to get it approved?

Which errors will likely have the largest effect on the net present value of changes in assumptions and estimates?

Managers are often correct that the company would benefit from advanced manufacturing technology.However,the present value of future cash flows analysis usually results in a negative net present value for the investment because of the

What is the role of capital expenditure decisions in the strategic planning process?

Audits that compare the estimates made in the capital budgeting process with the actual results

The appropriate discount rate that analysts use in computing the present value of future cash flows is composed of a risk factor reflecting the riskiness of the project.Thus,

Which of the following is used to compute the present value of future cash flows when evaluating investments involving cash flows over time where time elapses between cash payment and receipt?

The appropriate discount rate that analysts use in computing the present value of future cash flows is composed of an increase reflecting the inflation expected to occur over the life of the project.Thus,

Fundamental Concepts

Measuring Product Costs

Activity-Based Management

Strategic Management of Costs,quality,and Time

Cost Drivers and Cost Behavior

Financial Modeling for Short-Term Decision Making

Differential Cost Analysis for Operating Decisions

Profit Planning and Budgeting

Profit and Cost Center Performance Evaluation

Investment Center Performance Evaluation

Incentive Issues

Allocating Costs to Responsibility Centers

Filters