Question 1

Which methods of evaluating a capital investment project ignore the time value of money?

Accepted Answer

A)  Net present value and accounting rate of return. 
B)  Accounting rate of return and internal rate of return. 
C)  Internal rate of return and payback period. 
D)  Payback period and accounting rate of return. 
E)  Net present value and payback period. 
A)  Net present value and accounting rate of return. 
B)  Accounting rate of return and internal rate of return. 
C)  Internal rate of return and payback period. 
D)  Payback period and accounting rate of return. 
E)  Net present value and payback period. D

Question 2

A company is considering two alternative investment opportunities, each of which requires an initial cash outlay of $110,000. The expected net cash flows from the two projects follow:

Accepted Answer

Project A
0.8929 * $30,000 = $ 26,787
0.

Question 3

Dracor Company is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost $280,000 with a 7-year life, no salvage value, and will be depreciated using straight-line depreciation. The expected annual income related to this equipment follows. Compute the (a) payback period and (b) accounting rate of return for this equipment.

Accepted Answer

a. Payback period = cost of investment/annual net cash flow; $280,000/$86,200 = 3.25 years
b. Accounting rate of return = Annual after-tax net income/annual average investment
$46,200/(($280,000 + 0)/2) = 33.0%

Question 4

A company purchases a machine for $800,000. The machine has an expected life of 9 years and no salvage value. The company anticipates a yearly after-tax net income of $60,000 to be received uniformly throughout each year. What is the accounting rate of return?

Accepted Answer

Accounting rate of r

Question 5

Which methods of evaluating a capital investment project use cash flows as a measurement basis?

Accepted Answer

A)  Net present value, accounting rate of return, and internal rate of return. 
B)  Internal rate of return, payback period, and accounting rate of return. 
C)  Accounting rate of return, net present value, and payback period. 
D)  Payback period, internal rate of return, and net present value. 
E)  Net present value, payback period, accounting rate of return, and internal rate of return. 
A)  Net present value, accounting rate of return, and internal rate of return. 
B)  Internal rate of return, payback period, and accounting rate of return. 
C)  Accounting rate of return, net present value, and payback period. 
D)  Payback period, internal rate of return, and net present value. 
E)  Net present value, payback period, accounting rate of return, and internal rate of return.

Question 6

The accounting rate of return (ARR) is computed by dividing a project's after-tax net income by the average annual investment.

Accepted Answer

A) True 
 B)False

Question 7

A company is considering a 5-year project. It plans to invest $62,000 now and it forecasts cash flows for each year of $16,200. The company requires a hurdle rate of 12%. Calculate the internal rate of return to determine whether it should accept this project. Selected factors for a present value of an annuity of 1 for five years are shown below:

Accepted Answer

Investment/Annual net cash flows = $62,0

Question 8

Match between columns
                        Premises: Used to compare projects when a company cannot fund all positive net present value projects calculated by dividing present value of net cash flows by the initial investment.
An evaluation of a project's actual results versus its projected results.
Finance constraints that limit a company from accepting all positive net present value investments.
A series of cash flows of equal dollar amount over equal time periods.
An estimate of an asset's value to the company; computed by discounting the future net cash flows using the company's required rate of return and then subtracting the initial amount invested.
An average of the rate the company must pay to its lenders and investors.

Accepted Answer

The Answer of Postaudit and Annuity and Capital rationing and is...

Question 9

A company is considering purchasing a machine for $21,000. The machine will generate an after-tax net income of $2,000 per year. Annual depreciation expense would be $1,500. The machine has no salvage value. What is the accounting rate of return?

Accepted Answer

A)  19% 
B)  33% 
C)  17% 
D)  10% 
E)  25% 
A)  19% 
B)  33% 
C)  17% 
D)  10% 
E)  25%

Question 10

The accounting rate of return is based on cash flows rather than net income in its calculation.

Accepted Answer

A) True 
 B)False

Question 11

Capital budgeting decisions are not affected by return on investment considerations.

Accepted Answer

A) True 
 B)False

Question 12

A company is considering purchasing a machine for $21,000. The machine will generate an after-tax net income of $2,000 per year. Annual depreciation expense would be $1,500. What is the payback period for the new machine?

Accepted Answer

A)  4 years. 
B)  6 years. 
C)  10.5 years. 
D)  14 years. 
E)  42 years. 
A)  4 years. 
B)  6 years. 
C)  10.5 years. 
D)  14 years. 
E)  42 years.

Question 13

Briefly describe the time value of money. Why is the time value of money important in capital budgeting?

Accepted Answer

The time value of money means that, typi

Question 14

A shorter payback period reduces the company's ability to respond to unanticipated changes and increases the risk of having to keep an unprofitable investment.

Accepted Answer

A) True 
 B)False

Question 15

An advantage of the break-even time (BET) method over the payback period method is that it recognizes the time value of money.

Accepted Answer

A) True 
 B)False

Question 16

The accounting rate of return (ARR) is computed by dividing a project's after-tax net income by the amount of the initial investment.

Accepted Answer

A) True 
 B)False

Question 17

When computing payback period, the date the initial capital investment is made is year 1.

Accepted Answer

A) True 
 B)False

Question 18

Coffer Co. is analyzing two potential investments.   If the company is using the payback period method and it requires a payback of three years or less, which project(s) should be selected?

Accepted Answer

A)  Project Y. 
B)  Project X. 
C)  Both X and Y are acceptable projects. 
D)  Neither X nor Y is an acceptable project. 
E)  Project Y because it has a lower initial investment. 
A)  Project Y. 
B)  Project X. 
C)  Both X and Y are acceptable projects. 
D)  Neither X nor Y is an acceptable project. 
E)  Project Y because it has a lower initial investment.

Question 19

A company is considering the purchase of new equipment for $45,000. The projected annual net cash flows are $19,000. The machine has a useful life of 3 years and no salvage value. Management of the company requires a 12% return on investment. The present value of an annuity of $1 for various periods follows:   What is the net present value of this machine assuming all cash flows occur at year-end?

Accepted Answer

A)  $(1,768) 
B)  $3,000 
C)  $634 
D)  $19,000 
E)  $45,634 
A)  $(1,768) 
B)  $3,000 
C)  $634 
D)  $19,000 
E)  $45,634

Question 20

The internal rate of return method of evaluating capital investments cannot be used with uneven cash flows.

Accepted Answer

A) True 
 B)False

Which methods of evaluating a capital investment project ignore the time value of money?

A company is considering two alternative investment opportunities, each of which requires an initial cash outlay of $110,000. The expected net cash flows from the two projects follow:

A company purchases a machine for $800,000. The machine has an expected life of 9 years and no salvage value. The company anticipates a yearly after-tax net income of $60,000 to be received uniformly throughout each year. What is the accounting rate of return?

Which methods of evaluating a capital investment project use cash flows as a measurement basis?

The accounting rate of return (ARR) is computed by dividing a project's after-tax net income by the average annual investment.

A company is considering purchasing a machine for $21,000. The machine will generate an after-tax net income of $2,000 per year. Annual depreciation expense would be $1,500. The machine has no salvage value. What is the accounting rate of return?

The accounting rate of return is based on cash flows rather than net income in its calculation.

Capital budgeting decisions are not affected by return on investment considerations.

A company is considering purchasing a machine for $21,000. The machine will generate an after-tax net income of $2,000 per year. Annual depreciation expense would be $1,500. What is the payback period for the new machine?

Briefly describe the time value of money. Why is the time value of money important in capital budgeting?

A shorter payback period reduces the company's ability to respond to unanticipated changes and increases the risk of having to keep an unprofitable investment.

An advantage of the break-even time (BET) method over the payback period method is that it recognizes the time value of money.

The accounting rate of return (ARR) is computed by dividing a project's after-tax net income by the amount of the initial investment.

When computing payback period, the date the initial capital investment is made is year 1.

Coffer Co. is analyzing two potential investments. If the company is using the payback period method and it requires a payback of three years or less, which project(s) should be selected?

The internal rate of return method of evaluating capital investments cannot be used with uneven cash flows.

Managerial Accounting Concepts and Principles

Job Order Costing and Analysis

Process Costing and Analysis

Activity-Based Costing and Analysis

Cost Behavior and Cost-Volume-Profit Analysis

Variable Costing and Analysis

Master Budgets and Performance Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Relevant Costing for Managerial Decisions

Reporting Cash Flows

Analysis of Financial Statements

Time Value of Money

Lean Principles and Accounting

Accounting for Business Transactions

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Exam 11: Capital Budgeting and Investment Analysis

Which methods of evaluating a capital investment project ignore the time value of money?

A company is considering two alternative investment opportunities, each of which requires an initial cash outlay of $110,000. The expected net cash flows from the two projects follow:

A company purchases a machine for $800,000. The machine has an expected life of 9 years and no salvage value. The company anticipates a yearly after-tax net income of $60,000 to be received uniformly throughout each year. What is the accounting rate of return?

Which methods of evaluating a capital investment project use cash flows as a measurement basis?

The accounting rate of return (ARR) is computed by dividing a project's after-tax net income by the average annual investment.

A company is considering purchasing a machine for $21,000. The machine will generate an after-tax net income of $2,000 per year. Annual depreciation expense would be $1,500. The machine has no salvage value. What is the accounting rate of return?

The accounting rate of return is based on cash flows rather than net income in its calculation.

Capital budgeting decisions are not affected by return on investment considerations.

A company is considering purchasing a machine for $21,000. The machine will generate an after-tax net income of $2,000 per year. Annual depreciation expense would be $1,500. What is the payback period for the new machine?

Briefly describe the time value of money. Why is the time value of money important in capital budgeting?

A shorter payback period reduces the company's ability to respond to unanticipated changes and increases the risk of having to keep an unprofitable investment.

An advantage of the break-even time (BET) method over the payback period method is that it recognizes the time value of money.

The accounting rate of return (ARR) is computed by dividing a project's after-tax net income by the amount of the initial investment.

When computing payback period, the date the initial capital investment is made is year 1.

Coffer Co. is analyzing two potential investments. If the company is using the payback period method and it requires a payback of three years or less, which project(s) should be selected?

The internal rate of return method of evaluating capital investments cannot be used with uneven cash flows.

Managerial Accounting Concepts and Principles

Job Order Costing and Analysis

Process Costing and Analysis

Activity-Based Costing and Analysis

Cost Behavior and Cost-Volume-Profit Analysis

Variable Costing and Analysis

Master Budgets and Performance Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Relevant Costing for Managerial Decisions

Reporting Cash Flows

Analysis of Financial Statements

Time Value of Money

Lean Principles and Accounting

Accounting for Business Transactions

Filters