Question 1

Fill in the blank with either the phrase greater than, less than, or equal to.

Accepted Answer

The answer of Fill in the blank with either the...

Question 2

Valeria Products is considering the purchase of a new machine costing $800,000. The machine is expected to reduce annual operating costs by $120,000 and will be depreciated using the straight-line method (with no half-year convention) over ten years with no salvage value at the end of its useful life. Assuming a 30 percent income tax rate, the machine's payback period is:

Accepted Answer

A)  5.56 years. 
B)  6.76 years. 
C)  9.26 years. 
D)  3.57 years. 
A)  5.56 years. 
B)  6.76 years. 
C)  9.26 years. 
D)  3.57 years.

Question 3

Haven Inc. is in the 35 percent tax bracket and has a 12 percent rate of return. The after-tax rate of return is:

Accepted Answer

A)  12.0 percent. 
B)  7.8 percent. 
C)  4.2 percent. 
D)  34.3 percent. 
A)  12.0 percent. 
B)  7.8 percent. 
C)  4.2 percent. 
D)  34.3 percent.

Question 4

Vess Inc. is considering the following two projects:   Which of the following statements is true when comparing each of these projects?

Accepted Answer

A)  Project #1 has a higher profitability index. 
B)  Project #2 has a higher net present value. 
C)  They both have the same profitability index. 
D)  They both have an unacceptable profitability index. 
A)  Project #1 has a higher profitability index. 
B)  Project #2 has a higher net present value. 
C)  They both have the same profitability index. 
D)  They both have an unacceptable profitability index.

Question 5

Peterson Inc. has the following information available regarding one of the projects it is considering:   The profitability index of this project is:

Accepted Answer

A)  1.33. 
B)  0.75. 
C)  0.15. 
D)  0.33. 
A)  1.33. 
B)  0.75. 
C)  0.15. 
D)  0.33.

Question 6

The NPV method assumes that cash flows are reinvested at:

Accepted Answer

A)  the government's prime rate. 
B)  the internal rate of return. 
C)  the company's discount rate. 
D)  an average of the internal rate of return and the discount rate. 
A)  the government's prime rate. 
B)  the internal rate of return. 
C)  the company's discount rate. 
D)  an average of the internal rate of return and the discount rate.

Question 7

Blossoms Inc., a local florist, is considering replacing its current refrigerator used for storing flowers with a larger one. The estimated cost of the new refrigerator will be $30,000. Using a discount rate of 15%, the company calculates a net present value for the new refrigerator of $6,000. Based on this information, which of the following statements is true?

Accepted Answer

A)  If the actual cost of the new refrigerator ends up being greater than $36,000, the net present value will become negative. 
B)  If the actual cost of the new refrigerator ends up being less than $36,000, the net present value will become negative. 
C)  If the actual cost of the new refrigerator ends up being $30,000, the actual rate of return is equal to 15%. 
D)  If the actual cost of the new refrigerator ends up being less than $30,000, the company should not make the investment. 
A)  If the actual cost of the new refrigerator ends up being greater than $36,000, the net present value will become negative. 
B)  If the actual cost of the new refrigerator ends up being less than $36,000, the net present value will become negative. 
C)  If the actual cost of the new refrigerator ends up being $30,000, the actual rate of return is equal to 15%. 
D)  If the actual cost of the new refrigerator ends up being less than $30,000, the company should not make the investment.

Question 8

Oakwood Inc. requires all capital investments to generate an internal rate of return of 16%. Oakwood is currently considering an investment that is expected to generate annual cash inflows of $15,000 for 7 years. The cost of the investment should not exceed:

Accepted Answer

A)  $16,800. 
B)  $37,149. 
C)  $60,579. 
D)  $105,000. 
A)  $16,800. 
B)  $37,149. 
C)  $60,579. 
D)  $105,000.

Question 9

Vincent Products is considering a project that will require an initial investment of $95,000 and is expected to generate future cash flows of $15,000 each year for the next 15 years.
Required: Calculate the payback period in years.

Accepted Answer

Payback period is 6.

Question 10

Finch Corporation purchased an asset costing $12,000. Annual operating cash inflows generated from the asset are expected to be $2,168 each year for eight years. No salvage value is expected at the end of the asset's life. Using time value of money tables, which of the following rates is closest to the internal rate of return on the project?

Accepted Answer

A)  8% 
B)  9% 
C)  10% 
D)  16% 
A)  8% 
B)  9% 
C)  10% 
D)  16%

Question 11

RicChallengingson Corporation has the following information available regarding one of the projects it is considering:   The profitability index of this project is:

Accepted Answer

A)  0.889. 
B)  1.125. 
C)  8.000. 
D)  0.125. 
A)  0.889. 
B)  1.125. 
C)  8.000. 
D)  0.125.

Question 12

What is the difference between a screening decision and a preference decision?

Accepted Answer

Screening decisions involve de

Question 13

Mid-Town Products Inc. purchased equipment costing $150,000. Annual operating cash inflows are expected to be $26,000 each year for fifteen years. At the end of the equipment's life, the salvage value is expected to be $18,000. If Mid-Town's cost of capital is 14 percent, what is the asset's net present value? (ignore income taxes)

Accepted Answer

A)  $4,245 
B)  $2,212 
C)  $18,000 
D)  $23,592 
A)  $4,245 
B)  $2,212 
C)  $18,000 
D)  $23,592

Question 14

Hazir Products accepts capital investment projects with a payback period of four years or less. Under this condition, which of the following projects would be acceptable?

Accepted Answer

A)  Project #1 only. 
B)  Project #2 only. 
C)  Both Project #1 and Project #2. 
D)  Neither Project #1 nor Project #2. 
A)  Project #1 only. 
B)  Project #2 only. 
C)  Both Project #1 and Project #2. 
D)  Neither Project #1 nor Project #2.

Question 15

The NPV method assumes that cash inflows associated with a particular capital investment decision are:

Accepted Answer

A)  reinvested only at the beginning of the year. 
B)  immediately reinvested. 
C)  reinvested only in the last year of the investment's life. 
D)  not reinvested. 
A)  reinvested only at the beginning of the year. 
B)  immediately reinvested. 
C)  reinvested only in the last year of the investment's life. 
D)  not reinvested.

Fill in the blank with either the phrase greater than, less than, or equal to.

Haven Inc. is in the 35 percent tax bracket and has a 12 percent rate of return. The after-tax rate of return is:

Vess Inc. is considering the following two projects: Which of the following statements is true when comparing each of these projects?

Peterson Inc. has the following information available regarding one of the projects it is considering: The profitability index of this project is:

The NPV method assumes that cash flows are reinvested at:

Oakwood Inc. requires all capital investments to generate an internal rate of return of 16%. Oakwood is currently considering an investment that is expected to generate annual cash inflows of $15,000 for 7 years. The cost of the investment should not exceed:

Vincent Products is considering a project that will require an initial investment of $95,000 and is expected to generate future cash flows of $15,000 each year for the next 15 years. Required: Calculate the payback period in years.

RicChallengingson Corporation has the following information available regarding one of the projects it is considering: The profitability index of this project is:

What is the difference between a screening decision and a preference decision?

Hazir Products accepts capital investment projects with a payback period of four years or less. Under this condition, which of the following projects would be acceptable?

The NPV method assumes that cash inflows associated with a particular capital investment decision are:

Introduction to Managerial Accounting

Product Costing: Manufacturing Processes, Cost Terminology, and Cost Flows

Job Costing, Process Costing, and Operations Costing

Activity-Based Costing

Cost Behavior

Cost-Volume-Profit Analysis

Relevant Costs and Product Planning Decisions

The Use of Budgets in Planning and Decision Making

Variance Analysis A Tool for Cost Control and Performance Evaluation

Decentralization, Performance Evaluation, and the Balanced Scorecard

Financial Statement Analysis

The Statement of Cash Flows

Filters

Exam 8: Long-Term Capital Investment Decisions

Fill in the blank with either the phrase greater than, less than, or equal to.

Haven Inc. is in the 35 percent tax bracket and has a 12 percent rate of return. The after-tax rate of return is:

Vess Inc. is considering the following two projects: Which of the following statements is true when comparing each of these projects?

Peterson Inc. has the following information available regarding one of the projects it is considering: The profitability index of this project is:

The NPV method assumes that cash flows are reinvested at:

Oakwood Inc. requires all capital investments to generate an internal rate of return of 16%. Oakwood is currently considering an investment that is expected to generate annual cash inflows of $15,000 for 7 years. The cost of the investment should not exceed:

Vincent Products is considering a project that will require an initial investment of $95,000 and is expected to generate future cash flows of $15,000 each year for the next 15 years. Required: Calculate the payback period in years.

RicChallengingson Corporation has the following information available regarding one of the projects it is considering: The profitability index of this project is:

What is the difference between a screening decision and a preference decision?

Hazir Products accepts capital investment projects with a payback period of four years or less. Under this condition, which of the following projects would be acceptable?

The NPV method assumes that cash inflows associated with a particular capital investment decision are:

Introduction to Managerial Accounting

Product Costing: Manufacturing Processes, Cost Terminology, and Cost Flows

Job Costing, Process Costing, and Operations Costing

Activity-Based Costing

Cost Behavior

Cost-Volume-Profit Analysis

Relevant Costs and Product Planning Decisions

The Use of Budgets in Planning and Decision Making

Variance Analysis A Tool for Cost Control and Performance Evaluation

Decentralization, Performance Evaluation, and the Balanced Scorecard

Financial Statement Analysis

The Statement of Cash Flows

Filters