Question 1

A hurdle rate is the minimum acceptable rate of return for an investment.

Accepted Answer

A) True 
 B)False

Question 2

The internal rate of return equals the rate that yields a net present value of zero for an investment.

Accepted Answer

A) True 
 B)False

Question 3

A company is evaluating the purchase of a machine for $750,000 with a six-year useful life and no salvage value. The company uses straight-line depreciation and it assumes that the annual net cash flow from using the machine will be received uniformly throughout each year. In calculating the accounting rate of return, what is the company's average investment?

Accepted Answer

($750,000

Question 4

Using accelerated depreciation for tax reporting increases the net present value of an asset's cash flows because it produces larger net cash inflows in the early years of the asset's life.

Accepted Answer

A) True 
 B)False

Question 5

Butler Corporation is considering the purchase of new equipment costing $30,000. The projected annual after-tax net income from the equipment is $1,200, after deducting $10,000 for depreciation. The revenue is to be received at the end of each year. The machine has a useful life of 3 years and no salvage value. Butler requires a 12% return on its investments. The present value of an annuity of $1 for different periods follows:

$$\begin{array} { c c } 
\text { Periods } & 12 \% \
1 & 0.8929 \
2 & 1.6901 \
3 & 2.4018 \
4 & 3.0373
\end{array}$$ What is the net present value of the machine?

Accepted Answer

A)  $24,018. 
B)  $(3,100). 
C)  $30,000. 
D)  $26,900. 
E)  $(29,520). 
A)  $24,018. 
B)  $(3,100). 
C)  $30,000. 
D)  $26,900. 
E)  $(29,520).

Question 6

The process of restating cash flows in terms of their present values is called discounting.

Accepted Answer

A) True 
 B)False

Question 7

If Management was not concerned with the time value of money, from which two capital budgeting methods should they choose?

Accepted Answer

A)  IRR or Payback. 
B)  ARR or Payback. 
C)  BET or IRR. 
D)  BET or NPV. 
E)  NPV or Payback. 
A)  IRR or Payback. 
B)  ARR or Payback. 
C)  BET or IRR. 
D)  BET or NPV. 
E)  NPV or Payback.

Question 8

The expected amount of time to recover the initial amount of an investment is called the:

Accepted Answer

A)  Amortization period. 
B)  Payback period. 
C)  Interest period. 
D)  Budgeting period. 
E)  Discounted cash flow period. 
A)  Amortization period. 
B)  Payback period. 
C)  Interest period. 
D)  Budgeting period. 
E)  Discounted cash flow period.

Question 9

The time value of money concept:

Accepted Answer

A)  Means that a dollar today is worth less than a dollar tomorrow. 
B)  Means that a dollar tomorrow is worth more than a dollar today. 
C)  Means that a dollar today is worth more than a dollar tomorrow. 
D)  Means that "Time is money." 
E)  Does not involve the concept of compound interest. 
A)  Means that a dollar today is worth less than a dollar tomorrow. 
B)  Means that a dollar tomorrow is worth more than a dollar today. 
C)  Means that a dollar today is worth more than a dollar tomorrow. 
D)  Means that "Time is money." 
E)  Does not involve the concept of compound interest.

Question 10

A project requires a $28,000 investment and is expected to generate end-of-period annual cash inflows as follows: $$\begin{array} { l c c } 
\text { Year 1 } & \text { Year 2 } & \text { Year 3 } \
\$ 12,000 & \$ 13,000 & \$ 12,000
\end{array}$$ Assuming a discount rate of 10%, what is the net present value of this investment? Selected present value factors for a single sum are shown in the table below.
$$\begin{array} { c c c } 
= 10 \% & i = 10 \% & i = 10 \% \
n = 1 & n = 2 & n = 3 \
0.9091 & 0.8264 & 0.7513
\end{array}$$

Accepted Answer

A)  $0.00 
B)  $2,668.00 
C)  ($7,461.00) 
D)  $30,668.00 
E)  ($4,966.68) 
A)  $0.00 
B)  $2,668.00 
C)  ($7,461.00) 
D)  $30,668.00 
E)  ($4,966.68)

Question 11

The calculation of the payback period for an investment when net cash flow is uneven is:

Accepted Answer

A)  Determining when the cumulative total of net cash flows reaches zero. 
B)  Determining when net income equals the cost of the investment. 
C)  Determining which depreciation method will shorten the period. 
D)  Determining the net present value for each cash flow. 
E)  Determining the applicable hurdle rate. 
A)  Determining when the cumulative total of net cash flows reaches zero. 
B)  Determining when net income equals the cost of the investment. 
C)  Determining which depreciation method will shorten the period. 
D)  Determining the net present value for each cash flow. 
E)  Determining the applicable hurdle rate.

Question 12

The process of analyzing alternative long-term investments and deciding which assets to acquire or sell is known as:

Accepted Answer

A)  Planning and control. 
B)  Capital budgeting. 
C)  Variance analysis. 
D)  Master budgeting. 
E)  Managerial accounting. 
A)  Planning and control. 
B)  Capital budgeting. 
C)  Variance analysis. 
D)  Master budgeting. 
E)  Managerial accounting.

Question 13

Nestor Company is considering the purchase of an asset for $100,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year. Compute the break-even time (BET) period for this investment.

Accepted Answer

A)  2.85 years. 
B)  2.57 years. 
C)  3.17 years. 
D)  2.98 years. 
E)  3.62 years. 
A)  2.85 years. 
B)  2.57 years. 
C)  3.17 years. 
D)  2.98 years. 
E)  3.62 years.

Question 14

Nestor Company is considering the purchase of an asset for $100,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year.   Compute the payback period for this investment.

Accepted Answer

A)  2.85 years. 
B)  2.57 years. 
C)  3.00 years. 
D)  2.50 years. 
E)  3.62 years. 
A)  2.85 years. 
B)  2.57 years. 
C)  3.00 years. 
D)  2.50 years. 
E)  3.62 years.

Question 15

The payback method of evaluating an investment fails to consider how long the investment will generate cash inflows beyond the payback period.

Accepted Answer

A) True 
 B)False

Question 16

The ________ is computed by dividing a project's annual after-tax net income by the annual average amount invested.

Accepted Answer

accounting

Question 17

Alfarsi Industries uses the net present value method to make investment decisions and requires a 15% annual return on all investments. The company is considering two different investments. Each require an initial investment of $15,000 and will produce cash flows as follows:   The present value factors of $1 each year at 15% are:
  The present value of an annuity of $1 for 3 years at 15% is 2.2832
The net present value of Investment B is:

Accepted Answer

A)  $780. 
B)  $(15,780). 
C)  $9,000. 
D)  $39,797. 
E)  $(5,918). 
A)  $780. 
B)  $(15,780). 
C)  $9,000. 
D)  $39,797. 
E)  $(5,918).

Question 18

In ranking choices with the break-even time (BET) method, the investment with the longest BET gets the lowest rank.

Accepted Answer

A) True 
 B)False

Question 19

Capital budgeting decisions are risky because the outcome is uncertain, large amounts are usually involved, the investment involves a long-term commitment, and the decision could be difficult or impossible to reverse.

Accepted Answer

A) True 
 B)False

Question 20

Capital budgeting decisions are risky because all of the following are true except:

Accepted Answer

A)  The outcome is uncertain. 
B)  Large amounts of money are usually involved. 
C)  The investment involves a long-term commitment. 
D)  The decision could be difficult or impossible to reverse. 
E)  They rarely produce net cash flows. 
A)  The outcome is uncertain. 
B)  Large amounts of money are usually involved. 
C)  The investment involves a long-term commitment. 
D)  The decision could be difficult or impossible to reverse. 
E)  They rarely produce net cash flows.

A hurdle rate is the minimum acceptable rate of return for an investment.

The internal rate of return equals the rate that yields a net present value of zero for an investment.

Using accelerated depreciation for tax reporting increases the net present value of an asset's cash flows because it produces larger net cash inflows in the early years of the asset's life.

The process of restating cash flows in terms of their present values is called discounting.

If Management was not concerned with the time value of money, from which two capital budgeting methods should they choose?

The expected amount of time to recover the initial amount of an investment is called the:

The time value of money concept:

The calculation of the payback period for an investment when net cash flow is uneven is:

The process of analyzing alternative long-term investments and deciding which assets to acquire or sell is known as:

Nestor Company is considering the purchase of an asset for $100,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year. Compute the break-even time (BET) period for this investment.

Nestor Company is considering the purchase of an asset for $100,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year. Compute the payback period for this investment.

The payback method of evaluating an investment fails to consider how long the investment will generate cash inflows beyond the payback period.

The ________ is computed by dividing a project's annual after-tax net income by the annual average amount invested.

In ranking choices with the break-even time (BET) method, the investment with the longest BET gets the lowest rank.

Capital budgeting decisions are risky because the outcome is uncertain, large amounts are usually involved, the investment involves a long-term commitment, and the decision could be difficult or impossible to reverse.

Capital budgeting decisions are risky because all of the following are true except:

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

A hurdle rate is the minimum acceptable rate of return for an investment.

The internal rate of return equals the rate that yields a net present value of zero for an investment.

Using accelerated depreciation for tax reporting increases the net present value of an asset's cash flows because it produces larger net cash inflows in the early years of the asset's life.

The process of restating cash flows in terms of their present values is called discounting.

If Management was not concerned with the time value of money, from which two capital budgeting methods should they choose?

The expected amount of time to recover the initial amount of an investment is called the:

The time value of money concept:

The calculation of the payback period for an investment when net cash flow is uneven is:

The process of analyzing alternative long-term investments and deciding which assets to acquire or sell is known as:

Nestor Company is considering the purchase of an asset for $100,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year. Compute the break-even time (BET) period for this investment.

Nestor Company is considering the purchase of an asset for $100,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year. Compute the payback period for this investment.

The payback method of evaluating an investment fails to consider how long the investment will generate cash inflows beyond the payback period.

The ________ is computed by dividing a project's annual after-tax net income by the annual average amount invested.

In ranking choices with the break-even time (BET) method, the investment with the longest BET gets the lowest rank.

Capital budgeting decisions are risky because the outcome is uncertain, large amounts are usually involved, the investment involves a long-term commitment, and the decision could be difficult or impossible to reverse.

Capital budgeting decisions are risky because all of the following are true except:

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