Question 1

Which of the following would not be included as part of the periodic cash outflows associated with an investment project?

Accepted Answer

A) savings for fixed and variable production costs 
B) selling,general,and administrative expenditures 
C) opportunity costs of undertaking this particular project. 
D) expenditures for fixed and variable production costs. 
A) savings for fixed and variable production costs 
B) selling,general,and administrative expenditures 
C) opportunity costs of undertaking this particular project. 
D) expenditures for fixed and variable production costs.

Question 2

In making capital budgeting decisions,the discounted cash flow method aids in evaluating investments involving cash flows over time where there is a significant time difference between cash payment and receipt.Analysts use which two discounted cash flow methods?

Accepted Answer

A) the future value method and the internal rate of return method. 
B) the net present value method and the external rate of return method. 
C) the net present value method and the internal rate of return method. 
D) the future value method and the external rate of return method. 
A) the future value method and the internal rate of return method. 
B) the net present value method and the external rate of return method. 
C) the net present value method and the internal rate of return method. 
D) the future value method and the external rate of return method.

Question 3

A company purchased an asset at a cost of $80,000.Annual operating cash flows are expected to be $30,000 each year for 4 years.At the end of the asset life,there will be no residual (salvage)value.What is the net present value if the cost of capital is 12 percent? (Ignore income taxes. )

Accepted Answer

A) $40,000. 
B) $24,400. 
C) $11,120. 
D) $5,650. 
A) $40,000. 
B) $24,400. 
C) $11,120. 
D) $5,650.

Question 4

Feed the Hungry Foundation
Feed the Hungry Foundation is a non-profit organization that has a cost of capital of 10 percent.The foundation is considering the replacement of a piece of equipment.The old machine has a book value of $3,000 and a remaining estimated life of 5 years with no salvage value at that time.The salvage value of the old machine is currently $1,500.The new equipment will cost $10,000.It has an estimated life of 5 years with no salvage value then.Annual cash operating costs are $4,000 for the old machine and $2,000 for the new machine.
Refer to Feed the Hungry Foundation.Would you advise the organization to replace the machine?

Accepted Answer

Net cash outflow associated with keeping

Question 5

Feed the Hungry Foundation
Feed the Hungry Foundation is a non-profit organization that has a cost of capital of 10 percent.The foundation is considering the replacement of a piece of equipment.The old machine has a book value of $3,000 and a remaining estimated life of 5 years with no salvage value at that time.The salvage value of the old machine is currently $1,500.The new equipment will cost $10,000.It has an estimated life of 5 years with no salvage value then.Annual cash operating costs are $4,000 for the old machine and $2,000 for the new machine.
Refer to Feed the Hungry Foundation.What is the present value of the operating cash outflows for the new machine?

Accepted Answer

$2,000 ´ 3

Question 6

Which of the following is a capital investment decision method that in evaluating investments involving cash flows over time where there is a significant time difference between cash payment and receipt?

Accepted Answer

A) zero-based budgeting 
B) linear programming. 
C) discounted cash flow. 
D) program planning and review. 
A) zero-based budgeting 
B) linear programming. 
C) discounted cash flow. 
D) program planning and review.

Question 7

Island Grills considering purchasing a new machine for $1 million at the end of Year 0 to be put into operation at the beginning of Year 1.The new machine will save $250,000,before taxes,per year from the cash outflows generated by using the old machine.For tax purposes,Island will depreciate the new machine in the following amounts: $100,000 in Year 1,$300,000 in Year 2,and $200,000 per year thereafter until fully depreciated or sold.The new machine will have no salvage value at the end of Year 5.Island expects the new machine to have a market value of $400,000 at the end of three years.If Island acquires the new machine at the end of Year 0,it can sell the old one for $200,000 at that time.The old machine has a tax basis of $300,000 at the end of Year 0.If Island keeps the old machine,the company will depreciate it for tax purposes in the amount of $100,000 per year for three years,when it will have no market value.Island pays taxes at the rate of 40 percent of taxable income and uses a cost of capital of 12 percent in evaluating this possible acquisition.Island has sufficient otherwise-taxable income in Year 0 to save income taxes for each dollar of loss it may incur if it sells the old machine at the end of Year 0.
Required:
a.Compute the net present value of cash flows from each of the alternatives facing Island Grills.
b.Make a recommendation to Island Grills.
c.Assume that the cash flows described in the problem for Years 2 through 5 are real,not nominal,amounts,but the 12 percent cost of capital includes an allowance for inflation of 6 percent.Describe how this will affect your analysis.You need not perform new computations.

Accepted Answer

a.Analysis of Alternatives
1.F

Question 8

Which of the following is not a capital expenditure decision?

Accepted Answer

A) Purchasing a new piece of equipment 
B) Building a new factory 
C) Purchasing a computer system 
D) Issuing common stock 
A) Purchasing a new piece of equipment 
B) Building a new factory 
C) Purchasing a computer system 
D) Issuing common stock

Question 9

Describe the internal rate of return method of assessing investment alternatives.

Accepted Answer

The internal rate of return (IRR),someti

Question 10

How does depreciation affect investment decisions?

Accepted Answer

Although depreciation charges do not dir

Question 11

Organizational policies,procedures,and performance measures should support accurate estimations,and should consider the effect these factors have on planners when evaluating which of the following?

Accepted Answer

A) capital investment projects. 
B) raw material purchases. 
C) hiring temporary labor. 
D) indirect material purchases. 
A) capital investment projects. 
B) raw material purchases. 
C) hiring temporary labor. 
D) indirect material purchases.

Question 12

Which statement is true concerning depreciation charges?

Accepted Answer

A) Depreciation charges directly affects cash flows. 
B) Depreciation charges directly affect the after-tax cash flow. 
C) Depreciation charges can be deducted from a firm's tax return. 
D) all of the above. 
A) Depreciation charges directly affects cash flows. 
B) Depreciation charges directly affect the after-tax cash flow. 
C) Depreciation charges can be deducted from a firm's tax return. 
D) all of the above.

Question 13

What is a general type of long-term capital investment that companies make?

Accepted Answer

A) replacement and minor improvements 
B) training and development of employees 
C) advertising campaigns 
D) all of the above 
A) replacement and minor improvements 
B) training and development of employees 
C) advertising campaigns 
D) all of the above

Question 14

Which of the following is the discount rate that equates the net present value of a series of cash flows to zero?

Accepted Answer

A) investment rate of return. 
B) external rate of return. 
C) internal rate of return. 
D) international rate of return. 
A) investment rate of return. 
B) external rate of return. 
C) internal rate of return. 
D) international rate of return.

Question 15

How would income tax laws affect investment decisions?

Accepted Answer

A) Through their effect on the discount rate allowed. 
B) Through their effect on the type of investments allowed. 
C) Through their effect on the internal rate of return allowed. 
D) Through their effect on the type of depreciation method allowed. 
A) Through their effect on the discount rate allowed. 
B) Through their effect on the type of investments allowed. 
C) Through their effect on the internal rate of return allowed. 
D) Through their effect on the type of depreciation method allowed.

Question 16

The periodic cash outflows associated with an investment project do not include which of the following?

Accepted Answer

A) savings in taxes caused by deductibility of depreciation on tax return. 
B) expenditures for fixed production costs. 
C) expenditures for variable production costs. 
D) selling,general,and administrative expenditures. 
A) savings in taxes caused by deductibility of depreciation on tax return. 
B) expenditures for fixed production costs. 
C) expenditures for variable production costs. 
D) selling,general,and administrative expenditures.

Question 17

What is the reasoning behind the separation of the investing and financing aspects of making long-term decisions?

Accepted Answer

Capital budgeting involves deciding whic

Question 18

What is true of audits of the capital investment process?

Accepted Answer

A) Audits of the capital investment process compare the estimates made in the capital budgeting process with the actual results. 
B) Audits of the capital investment process should never be conducted because of the effect on employee morale. 
C) Audits of the capital investment process should never be used to identify and reward good planners 
D) Audits of the capital investment process create an environment in which planners will be tempted to inflate their estimates of the benefits associated with the project to get it approved. 
A) Audits of the capital investment process compare the estimates made in the capital budgeting process with the actual results. 
B) Audits of the capital investment process should never be conducted because of the effect on employee morale. 
C) Audits of the capital investment process should never be used to identify and reward good planners 
D) Audits of the capital investment process create an environment in which planners will be tempted to inflate their estimates of the benefits associated with the project to get it approved.

Question 19

The decision to accept or reject an investment proposal that computes the investment's net present value,using the organization's adjusted cost of capital as the discount rate and undertakes the investment if its net present value is positive,or rejects the investment if its net present value is negative is called the

Accepted Answer

A) net present value method. 
B) future value method. 
C) internal rate of return method. 
D) external rate of return method. 
A) net present value method. 
B) future value method. 
C) internal rate of return method. 
D) external rate of return method.

Question 20

Use this information to answer the following questions:
An investment of $20,000 today will yield $8,000 a year at the end of the next three years.
Refer to the above information.Will the project be accepted at a cost of capital of 8 percent?

Accepted Answer

Yes,the net present

Which of the following would not be included as part of the periodic cash outflows associated with an investment project?

In making capital budgeting decisions,the discounted cash flow method aids in evaluating investments involving cash flows over time where there is a significant time difference between cash payment and receipt.Analysts use which two discounted cash flow methods?

A company purchased an asset at a cost of $80,000.Annual operating cash flows are expected to be $30,000 each year for 4 years.At the end of the asset life,there will be no residual (salvage)value.What is the net present value if the cost of capital is 12 percent? (Ignore income taxes. )

Which of the following is a capital investment decision method that in evaluating investments involving cash flows over time where there is a significant time difference between cash payment and receipt?

Which of the following is not a capital expenditure decision?

Describe the internal rate of return method of assessing investment alternatives.

How does depreciation affect investment decisions?

Organizational policies,procedures,and performance measures should support accurate estimations,and should consider the effect these factors have on planners when evaluating which of the following?

Which statement is true concerning depreciation charges?

What is a general type of long-term capital investment that companies make?

Which of the following is the discount rate that equates the net present value of a series of cash flows to zero?

How would income tax laws affect investment decisions?

The periodic cash outflows associated with an investment project do not include which of the following?

What is the reasoning behind the separation of the investing and financing aspects of making long-term decisions?

What is true of audits of the capital investment process?

Use this information to answer the following questions: An investment of $20,000 today will yield $8,000 a year at the end of the next three years. Refer to the above information.Will the project be accepted at a cost of capital of 8 percent?

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 would not be included as part of the periodic cash outflows associated with an investment project?

In making capital budgeting decisions,the discounted cash flow method aids in evaluating investments involving cash flows over time where there is a significant time difference between cash payment and receipt.Analysts use which two discounted cash flow methods?

A company purchased an asset at a cost of $80,000.Annual operating cash flows are expected to be $30,000 each year for 4 years.At the end of the asset life,there will be no residual (salvage)value.What is the net present value if the cost of capital is 12 percent? (Ignore income taxes. )

Which of the following is a capital investment decision method that in evaluating investments involving cash flows over time where there is a significant time difference between cash payment and receipt?

Which of the following is not a capital expenditure decision?

Describe the internal rate of return method of assessing investment alternatives.

How does depreciation affect investment decisions?

Organizational policies,procedures,and performance measures should support accurate estimations,and should consider the effect these factors have on planners when evaluating which of the following?

Which statement is true concerning depreciation charges?

What is a general type of long-term capital investment that companies make?

Which of the following is the discount rate that equates the net present value of a series of cash flows to zero?

How would income tax laws affect investment decisions?

The periodic cash outflows associated with an investment project do not include which of the following?

What is the reasoning behind the separation of the investing and financing aspects of making long-term decisions?

What is true of audits of the capital investment process?

Use this information to answer the following questions: An investment of $20,000 today will yield $8,000 a year at the end of the next three years. Refer to the above information.Will the project be accepted at a cost of capital of 8 percent?

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