Question 1

The minimum rate of return used by an investor to bring future cash flows to their present value is called:

Accepted Answer

A) The investment rate. 
B) The prime rate. 
C) The discount rate. 
D) The present rate. 
A) The investment rate. 
B) The prime rate. 
C) The discount rate. 
D) The present rate.

Question 2

Kenny Company is considering the possibility of investing $1,500,000 in a special project.This venture will return $375,000 per year for 12 years in after tax cash flows.Depreciation on the project will be $187,500 per year using straight-line depreciation.The payback period for the project is:

Accepted Answer

A) 6 years. 
B) 12 years. 
C) 4 years. 
D) 2 years. 
A) 6 years. 
B) 12 years. 
C) 4 years. 
D) 2 years.

Question 3

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 4

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

Accepted Answer

A) True 
 B)False

Question 5

Jericho Corporation is considering the purchase of new equipment costing initially $96,000.The equipment has an estimated life of 6 years with no salvage value.Straight-line depreciation is to be used.Net annual after tax cash flow is estimated to be $31,200 for 6 years.The payback period is:

Accepted Answer

A) 1.2300 years. 
B) 3.0769 years. 
C) 5.0799 years. 
D) 6.0000 years. 
A) 1.2300 years. 
B) 3.0769 years. 
C) 5.0799 years. 
D) 6.0000 years.

Question 6

Capital budgeting
Zhang Corporation is considering investing $190,000 in equipment to produce a new product.Useful service life of the equipment is estimated to be 5 years,with zero salvage value.Straight-line depreciation is used.The company estimates that production and sale of the new product will increase net income by $65,000 a year.(Round your years and percentage answers to one decimal place.)
(a)The payback period will be __________ years.
(b)The expected rate of return on average investment will be __________.

Accepted Answer

The answer of Capital budgeting
Zhang Corporation is considering investing $190,000...

Question 7

The return on average investment computation ignores the timing of an investment's future cash flows.

Accepted Answer

A) True 
 B)False

Question 8

The management of Trylon Farms is considering the purchase of equipment costing $320,000.The equipment has a useful life of eight years,with $20,000 residual value.The use of this equipment will produce positive annual cash flow of $60,000 for eight years,as well as $20,000 from sale of the equipment at the end of the eighth year.Compute the net present value of this investment,discounted at an annual rate of 10%.(Present value of $1 due in eight years,discounted at 10%,is 0.467; present value of $1 received annually for eight years,discounted at 10%,is 5.335.)

Accepted Answer

A) $9,340. 
B) $320,100. 
C) $9,440. 
D) $329,440. 
A) $9,340. 
B) $320,100. 
C) $9,440. 
D) $329,440.

Question 9

The shortcomings of the payback method
What are the major shortcomings of relying too heavily upon the payback period in evaluating capital investment decisions?

Accepted Answer

The major shortcomings of the payback pe

Question 10

The payback period analysis fails to consider the cash flows over the entire life of the investment.

Accepted Answer

A) True 
 B)False

Question 11

Capital budgeting
Mason Co.is evaluating two alternative investment proposals.Below are data for each proposal:   The following information was taken from present value tables:   All revenue and expenses other than depreciation will be received and paid in cash.The company uses a discount rate of 12% in evaluating all capital investments.
Compute the following for each proposal (round payback period to the nearest tenth of a year and round return on average investment to the nearest tenth of a percent):   (f)Based on your analysis,which proposal appears to be the best investment?

Accepted Answer

(a)Proposal A = $24,200,Proposal B = $24

Question 12

An investment cost $80,000 with no salvage value,a 5 year useful life,and had an expected annual increase in net income of $7,000.Straight line depreciation is used.What is the expected return on average investment?

Accepted Answer

A) 8.8%. 
B) 20%. 
C) 17.5%. 
D) 10.4%. 
A) 8.8%. 
B) 20%. 
C) 17.5%. 
D) 10.4%.

Question 13

If an investment costs $140,000 with no residual value,an expected increase in net income of $35,000 and a 5 year useful life,the payback period would be:

Accepted Answer

A) 2.2 years. 
B) 4 years. 
C) 5 years. 
D) 2 years. 
A) 2.2 years. 
B) 4 years. 
C) 5 years. 
D) 2 years.

Question 14

Discounting cash flows
Determine the present value of the following cash flows discounted at an annual rate of 10%:
(a)$96,000 to be received five years from today (the present value of $1 at a 10% compound interest rate for five years is 0.621): $__________
(b)$37,000 to be received annually for five years (the present value of $1 at 10% received annually for five years is 3.791): $__________
(c)$58,000 to be received annually for six years,with an additional $16,000 salvage value to be received at the end of the sixth year (the present value of $1 at 10% received annually for six years is 4.355,and the present value of $1 due six years hence at 10% is 0.564): $__________

Accepted Answer

(a)59,616

The minimum rate of return used by an investor to bring future cash flows to their present value is called:

Kenny Company is considering the possibility of investing $1,500,000 in a special project.This venture will return $375,000 per year for 12 years in after tax cash flows.Depreciation on the project will be $187,500 per year using straight-line depreciation.The payback period for the project is:

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

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

Jericho Corporation is considering the purchase of new equipment costing initially $96,000.The equipment has an estimated life of 6 years with no salvage value.Straight-line depreciation is to be used.Net annual after tax cash flow is estimated to be $31,200 for 6 years.The payback period is:

The return on average investment computation ignores the timing of an investment's future cash flows.

The shortcomings of the payback method What are the major shortcomings of relying too heavily upon the payback period in evaluating capital investment decisions?

The payback period analysis fails to consider the cash flows over the entire life of the investment.

An investment cost $80,000 with no salvage value,a 5 year useful life,and had an expected annual increase in net income of $7,000.Straight line depreciation is used.What is the expected return on average investment?

If an investment costs $140,000 with no residual value,an expected increase in net income of $35,000 and a 5 year useful life,the payback period would be:

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

Filters

Exam 26: Capital Budgeting

The minimum rate of return used by an investor to bring future cash flows to their present value is called:

Kenny Company is considering the possibility of investing $1,500,000 in a special project.This venture will return $375,000 per year for 12 years in after tax cash flows.Depreciation on the project will be $187,500 per year using straight-line depreciation.The payback period for the project is:

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

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

Jericho Corporation is considering the purchase of new equipment costing initially $96,000.The equipment has an estimated life of 6 years with no salvage value.Straight-line depreciation is to be used.Net annual after tax cash flow is estimated to be $31,200 for 6 years.The payback period is:

The return on average investment computation ignores the timing of an investment's future cash flows.

The shortcomings of the payback method What are the major shortcomings of relying too heavily upon the payback period in evaluating capital investment decisions?

The payback period analysis fails to consider the cash flows over the entire life of the investment.

An investment cost $80,000 with no salvage value,a 5 year useful life,and had an expected annual increase in net income of $7,000.Straight line depreciation is used.What is the expected return on average investment?

If an investment costs $140,000 with no residual value,an expected increase in net income of $35,000 and a 5 year useful life,the payback period would be:

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

Filters