Question 1

When is the only time an investment analysis needs working capital?

Accepted Answer

A) when the firm must let cash sit idle as a condition of undertaking an investment. 
B) whenever a capital expenditure decision is made. 
C) when a firm makes cash payments 
D) when a firm must show cash received from sales when it collects the cash. 
A) when the firm must let cash sit idle as a condition of undertaking an investment. 
B) whenever a capital expenditure decision is made. 
C) when a firm makes cash payments 
D) when a firm must show cash received from sales when it collects the cash.

Question 2

What is true concerning the internal rate of return (IRR)method?

Accepted Answer

A) The IRR method determines the discount rate that equates the net present value of the series to the initial investment. 
B) The IRR method determines the discount rate that equates the net present value of the series to hurdle rate. 
C) The IRR method determines the discount rate that equates the net present value of the series to cut-off rate. 
D) The IRR method determines the discount rate that equates the net present value of the series to zero. 
A) The IRR method determines the discount rate that equates the net present value of the series to the initial investment. 
B) The IRR method determines the discount rate that equates the net present value of the series to hurdle rate. 
C) The IRR method determines the discount rate that equates the net present value of the series to cut-off rate. 
D) The IRR method determines the discount rate that equates the net present value of the series to zero.

Question 3

The calculation of the net present value of a proposed project does not require estimates of which of the following?

Accepted Answer

A) the amount of future cash flows. 
B) the timing of future cash flows. 
C) the cost of capital rate. 
D) the amount of sunk costs already incurred. 
A) the amount of future cash flows. 
B) the timing of future cash flows. 
C) the cost of capital rate. 
D) the amount of sunk costs already incurred.

Question 4

Which of the following statements is correct regarding capital investments?

Accepted Answer

A) Capital investments should be funded out of excess cash reserves. 
B) Capital investments should have a positive internal rate of return. 
C) Capital investments should achieve short-term objectives. 
D) Capital investments should implement a company's strategy. 
A) Capital investments should be funded out of excess cash reserves. 
B) Capital investments should have a positive internal rate of return. 
C) Capital investments should achieve short-term objectives. 
D) Capital investments should implement a company's strategy.

Question 5

Berringer Company is considering an investment that will generate cash revenues of $100,000 per year for 8 years,and have cash expenses of $70,000 per year for 8 years.The cost of the asset is $80,000,and it will be depreciated using straight-line depreciation over its 8 year life.Berringer pays income taxes at a rate of 30%.The cost of capital is 12%
Required:
a.Prepare an analysis showing the annual after tax cash flow associated with this asset.
b.Compute the net present value of this investment using the cash flow you computed in a above.

Accepted Answer

a.
 @#IMG-DLM&_TB2144_00 b.($8

Question 6

Which statement is true concerning depreciation?

Accepted Answer

A) Depreciation does not affect taxable income. 
B) Depreciation should be considered in the cash flow analysis. 
C) Depreciation is never relevant for decision making. 
D) Depreciation is never affected by income tax laws. 
A) Depreciation does not affect taxable income. 
B) Depreciation should be considered in the cash flow analysis. 
C) Depreciation is never relevant for decision making. 
D) Depreciation is never affected by income tax laws.

Question 7

A project requires an initial investment of $43,000 and has the following expected stream of cash flows:
 
The internal rate of return for the project is closest to

Accepted Answer

A) 0 percent. 
B) 10 percent. 
C) 15 percent. 
D) 20 percent. 
A) 0 percent. 
B) 10 percent. 
C) 15 percent. 
D) 20 percent.

Question 8

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 old machine?

Accepted Answer

$4,000 ´ 3

Question 9

Justification of investments in advanced manufacturing systems by using discounted cash flow analysis is

Accepted Answer

A) required by generally accepted accounting principles. 
B) easy. 
C) a difficult problem. 
D) based on quantifiable benefits,only. 
A) required by generally accepted accounting principles. 
B) easy. 
C) a difficult problem. 
D) based on quantifiable benefits,only.

Question 10

Eastchester Products
Eastchester Products is considering a project that requires an initial investment of $400,000 and will generate the following cash inflows for the next 4 years:
   
Refer to Eastchester Products.Ignoring tax effects,calculate the net present value of this project if Eastchester's cost of capital is 20 percent.Should the project be accepted or rejected?

Accepted Answer

@#IMG-DLM&_TB2144_00 Since NPV

Question 11

Explain how you might analyze a capital budgeting decision where the cash flow data
are nominal (including expected inflation of,say,5 percent per year)but the quoted
cost of capital of 11 percent per year is real (excluding anticipated inflation).

Accepted Answer

Increase the quoted

Question 12

Crown Corporation
Crown Corporation has agreed to sell some used computer equipment to Bob Parsons,one of the company's employees,for $5,000.
Refer to Crown Corporation.What would the present value of the note be if Parsons agreed to the immediate down payment of $1,000 but would like the note for $4,000 to be payable in full at the end of the fourth year? The increased risk associated with the terms of this note changes the discount rate to 8 percent.

Accepted Answer

$2,940 (.7

Question 13

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 10 percent?

Accepted Answer

No,the net present v

Question 14

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

Accepted Answer

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

Question 15

What does the term capital budgetingmean in the context of making capital expenditure decisions?

Accepted Answer

A) the process of choosing assets. 
B) the process of allocating the funds among assets. 
C) the process of acquiring the funds to finance the business. 
D) None of the above. 
A) the process of choosing assets. 
B) the process of allocating the funds among assets. 
C) the process of acquiring the funds to finance the business. 
D) None of the above.

Question 16

Latway Company is considering opening a new sales territory.Management expects the initial investment to be $150,000 and subsequent investments of $100,000 and $50,000 at the end of the first and second years.Net cash flow from the sales territory is expected to yield after-tax cash inflow for 5 more years: $75,000 for the first two years and $60,000 for the remaining years.The company's cost of capital is 12 percent.Calculate the net present value of this project.

Accepted Answer

@#IMG-DLM&_TB2144_00 @#IMG-DLM&_TB2144_0

Question 17

Which statement is true concerning depreciation?

Accepted Answer

A) Depreciation does not affect after-tax cash flow. 
B) Depreciation should be considered in the cash flow analysis. 
C) Depreciation is not affected by income tax laws which specify the allowable methods. 
D) Depreciation is a method used in financial accounting to allocate the cost of an asset over its useful life,but has no application for managerial accounting purposes. 
A) Depreciation does not affect after-tax cash flow. 
B) Depreciation should be considered in the cash flow analysis. 
C) Depreciation is not affected by income tax laws which specify the allowable methods. 
D) Depreciation is a method used in financial accounting to allocate the cost of an asset over its useful life,but has no application for managerial accounting purposes.

Question 18

What is the appropriate decision to make it the present value of the future cash inflows exceeds the present value of the future cash outflows for a proposal?

Accepted Answer

A) accept the alternative. 
B) reject the alternative. 
C) find a better alternative. 
D) decrease the firm's cost of capital. 
A) accept the alternative. 
B) reject the alternative. 
C) find a better alternative. 
D) decrease the firm's cost of capital.

Question 19

The cash flows associated with an investment project include which of the following?

Accepted Answer

A) initial cash flows 
B) periodic cash flows 
C) terminal cash flows. 
D) all of the above. 
A) initial cash flows 
B) periodic cash flows 
C) terminal cash flows. 
D) all of the above.

Question 20

In making long-term decisions about investing and financing,a firm should do which of the following?

Accepted Answer

A) decide whether to make the investment,then decide how to raise the funds required for the investment. 
B) decide how to raise the funds required for the investment,then decide whether to make the investment. 
C) decide how to raise the funds required for the investment at the same time as deciding whether to make the investment. 
D) None of the above. 
A) decide whether to make the investment,then decide how to raise the funds required for the investment. 
B) decide how to raise the funds required for the investment,then decide whether to make the investment. 
C) decide how to raise the funds required for the investment at the same time as deciding whether to make the investment. 
D) None of the above.

When is the only time an investment analysis needs working capital?

What is true concerning the internal rate of return (IRR)method?

The calculation of the net present value of a proposed project does not require estimates of which of the following?

Which of the following statements is correct regarding capital investments?

Which statement is true concerning depreciation?

A project requires an initial investment of $43,000 and has the following expected stream of cash flows: The internal rate of return for the project is closest to

Justification of investments in advanced manufacturing systems by using discounted cash flow analysis is

Explain how you might analyze a capital budgeting decision where the cash flow data are nominal (including expected inflation of,say,5 percent per year)but the quoted cost of capital of 11 percent per year is real (excluding anticipated inflation).

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 10 percent?

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

What does the term capital budgetingmean in the context of making capital expenditure decisions?

Which statement is true concerning depreciation?

What is the appropriate decision to make it the present value of the future cash inflows exceeds the present value of the future cash outflows for a proposal?

The cash flows associated with an investment project include which of the following?

In making long-term decisions about investing and financing,a firm should do which of the following?

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

When is the only time an investment analysis needs working capital?

What is true concerning the internal rate of return (IRR)method?

The calculation of the net present value of a proposed project does not require estimates of which of the following?

Which of the following statements is correct regarding capital investments?

Which statement is true concerning depreciation?

A project requires an initial investment of $43,000 and has the following expected stream of cash flows: The internal rate of return for the project is closest to

Justification of investments in advanced manufacturing systems by using discounted cash flow analysis is

Explain how you might analyze a capital budgeting decision where the cash flow data are nominal (including expected inflation of,say,5 percent per year)but the quoted cost of capital of 11 percent per year is real (excluding anticipated inflation).

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 10 percent?

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

What does the term capital budgetingmean in the context of making capital expenditure decisions?

Which statement is true concerning depreciation?

What is the appropriate decision to make it the present value of the future cash inflows exceeds the present value of the future cash outflows for a proposal?

The cash flows associated with an investment project include which of the following?

In making long-term decisions about investing and financing,a firm should do which of the following?

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