Question 1

The difference between the present value and future value depends on the rate of interest and the length of time that interest accumulates.

Accepted Answer

A) True 
 B)False

Question 2

Capital budgeting estimates often involve a considerable degree of uncertainty.

Accepted Answer

A) True 
 B)False

Question 3

Compute the net present value of this proposed investment, using a discount rate of 12%. (An annuity table shows that the present value of $1 received annually for six years, discounted at 12%, is 4.111.)

Accepted Answer

A)  $105,600. 
B)  ($41,078). 
C)  $369,600. 
D)  $434,121. 
A)  $105,600. 
B)  ($41,078). 
C)  $369,600. 
D)  $434,121.

Question 4

The net present value of the proposed investment, discounted at an annual rate of 15% and rounded to the nearest dollar, is (tables show that using a discount rate of 15%, the present value of $1 due in five years is 0.497, and the present value of a five year $1 annuity is 3.352):

Accepted Answer

A)  $528. 
B)  $1,128.50. 
C)  $(1,405). 
D)  Some other amount. 
A)  $528. 
B)  $1,128.50. 
C)  $(1,405). 
D)  Some other amount.

Question 5

The expected rate of return on average investment is:

Accepted Answer

A)  37.1%. 
B)  33 1/3%. 
C)  60%. 
D)  Some other rate. 
A)  37.1%. 
B)  33 1/3%. 
C)  60%. 
D)  Some other rate.

Question 6

The annual net cash flow of an investment refers to the excess revenue it generates over its related expenses.

Accepted Answer

A) True 
 B)False

Question 7

An investment's annual net cash flow will always be equal to its:

Accepted Answer

A)  Annual revenue less its annual expenses. 
B)  Annual cash receipts less its annual cash disbursements. 
C)  Annual revenue less its annual cash disbursements. 
D)  Annual net income plus its annual depreciation expense. 
A)  Annual revenue less its annual expenses. 
B)  Annual cash receipts less its annual cash disbursements. 
C)  Annual revenue less its annual cash disbursements. 
D)  Annual net income plus its annual depreciation expense.

Question 8

The payback period for this proposed investment is:

Accepted Answer

A)  4.5 years. 
B)  Twelve years. 
C)  Six years. 
D)  Two years. 
A)  4.5 years. 
B)  Twelve years. 
C)  Six years. 
D)  Two years.

Question 9

The selection of an appropriate discount rate for determining net present value of a particular investment proposal does not depend upon:

Accepted Answer

A)  The present value of the proposal's future cash flows. 
B)  Alternative investment opportunities available. 
C)  The nature of the investment proposal. 
D)  The investor's cost of capital. 
A)  The present value of the proposal's future cash flows. 
B)  Alternative investment opportunities available. 
C)  The nature of the investment proposal. 
D)  The investor's cost of capital.

Question 10

Annual net cash flow: $_____________

Accepted Answer

The answer of Annual net cash flow: $_____________...

Question 11

The impact of a capital budgeting decision upon the environment is an example of a non financial consideration.

Accepted Answer

A) True 
 B)False

Question 12

Sterling Corporation has borrowed $75,000 that must be repaid in two years. This $75,000 is to be invested in an eight-year project with an estimated annual net cash flow of $15,000. The payback period for this investment is:

Accepted Answer

A)  Two years. 
B)  Five years. 
C)  Eight years. 
D)  Indeterminable with the given information. 
A)  Two years. 
B)  Five years. 
C)  Eight years. 
D)  Indeterminable with the given information.

Question 13

Capital budget audit Briefly discuss the reasons that a company's management would conduct a regular capital budget audit.

Accepted Answer

A company will conduct a capital budget

Question 14

Return on average investment for this investment is:

Accepted Answer

A)  25%. 
B)  20%. 
C)  12 1/2%. 
D)  15%. 
A)  25%. 
B)  20%. 
C)  12 1/2%. 
D)  15%.

Question 15

In capital budgeting, one may use estimates in making decisions.

Accepted Answer

A) True 
 B)False

Question 16

Net present value (round to the nearest dollar) of the proposed investment, discounted at an annual rate of 15% (Tables show that the present value of $1 to be received in five periods, discounted at 15%, is 0.497 and that the present value of a five year annuity of $1, discounted at 15%, is 3.352): $_____________

Accepted Answer

The answer of Net present value (round to the nearest...

Question 17

The net present value of an investment proposal is the difference between the total present value of future net cash flows and the cost of the investment.

Accepted Answer

A) True 
 B)False

Question 18

Annual increase in Port's net income: $_____________

Accepted Answer

The answer of Annual increase in Port's net income: $_____________...

Question 19

In computing the return on average investment of a particular asset, the asset's annual depreciation expense may be viewed as:

Accepted Answer

A)  An increase in the average amount invested over the life of the asset. 
B)  An increase in the asset's carrying value each year. 
C)  A recovery of the amount originally invested in the asset. 
D)  A decrease in the asset's net cash flows. 
A)  An increase in the average amount invested over the life of the asset. 
B)  An increase in the asset's carrying value each year. 
C)  A recovery of the amount originally invested in the asset. 
D)  A decrease in the asset's net cash flows.

Question 20

The expected rate of return on average investment in this equipment is:

Accepted Answer

A)  15%. 
B)  20%. 
C)  7.5%. 
D)  Some other percentage. 
A)  15%. 
B)  20%. 
C)  7.5%. 
D)  Some other percentage.

Exam 26: Capital Budgeting

The difference between the present value and future value depends on the rate of interest and the length of time that interest accumulates.

Capital budgeting estimates often involve a considerable degree of uncertainty.

Compute the net present value of this proposed investment, using a discount rate of 12%. (An annuity table shows that the present value of $1 received annually for six years, discounted at 12%, is 4.111.)

The net present value of the proposed investment, discounted at an annual rate of 15% and rounded to the nearest dollar, is (tables show that using a discount rate of 15%, the present value of $1 due in five years is 0.497, and the present value of a five year $1 annuity is 3.352):

The expected rate of return on average investment is:

The annual net cash flow of an investment refers to the excess revenue it generates over its related expenses.

An investment's annual net cash flow will always be equal to its:

The payback period for this proposed investment is:

The selection of an appropriate discount rate for determining net present value of a particular investment proposal does not depend upon:

Annual net cash flow: $_____________

The impact of a capital budgeting decision upon the environment is an example of a non financial consideration.

Sterling Corporation has borrowed $75,000 that must be repaid in two years. This $75,000 is to be invested in an eight-year project with an estimated annual net cash flow of $15,000. The payback period for this investment is:

Capital budget audit Briefly discuss the reasons that a company's management would conduct a regular capital budget audit.

Return on average investment for this investment is:

In capital budgeting, one may use estimates in making decisions.

The net present value of an investment proposal is the difference between the total present value of future net cash flows and the cost of the investment.

Annual increase in Port's net income: $_____________

In computing the return on average investment of a particular asset, the asset's annual depreciation expense may be viewed as:

The expected rate of return on average investment in this equipment is:

Accounting: Information for Decision Making

Basic Financial Statements

The Accounting Cycle: Capturing Economic Events

The Accounting Cycle: Accruals and Deferrals

The Accounting Cycle: Reporting Financial Results

Merchandising Activities

Financial Assets

Inventories and the Cost of Goods Sold

Plant and Intangible Assets

Liabilities

Stockholders Equity: Paid-In Capital

Income and Changes in Retained Earnings

Statement of Cash Flows

Financial Statement Analysis

Global Business and Accounting

Management Accounting: a Business Partner

Job Order Cost Systems and Overhead Allocations

Process Costing

Costing and the Value Chain

Cost-Volume-Profit Analysis

Incremental Analysis

Responsibility Accounting and Transfer Pricing

Operational Budgeting

Standard Cost Systems

Rewarding Business Performance

Forms of Business Organization

The Time Value of Money: Future Amounts and Present Values Answer Key

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