Question 1

Capital budgeting decisions are generally based on:

Accepted Answer

A)  Tentative predictions of future outcomes. 
B)  Perfect predictions of future outcomes. 
C)  Results from past outcomes only. 
D)  Results from current outcomes only. 
E)  Speculation of interest rates and economic performance only. 
A)  Tentative predictions of future outcomes. 
B)  Perfect predictions of future outcomes. 
C)  Results from past outcomes only. 
D)  Results from current outcomes only. 
E)  Speculation of interest rates and economic performance only.

Question 2

A company can buy a machine that is expected to have a three-year life and a $30,000 salvage value. The machine will cost $1,800,000 and is expected to produce a $200,000 after-tax net income to be received at the end of each year. If a table of present values of $1 at 12% shows values of 0.8929 for one year, 0.7972 for two years, and 0.7118 for three years, what is the net present value of the cash flows from the investment, discounted at 12%?

Accepted Answer

A)  $118,855 
B)  $583,676 
C)  $629,788 
D)  $705,391 
E)  $1,918,855 
A)  $118,855 
B)  $583,676 
C)  $629,788 
D)  $705,391 
E)  $1,918,855

Question 3

When making capital budgeting decisions, companies usually prefer shorter payback periods. Explain why shorter payback periods are desirable.

Accepted Answer

Shorter payback periods increase return

Question 4

The calculation of annual net cash flow from a particular investment project should include all of the following except:

Accepted Answer

A)  Income taxes. 
B)  Revenues generated by the investment. 
C)  Cost of products generated by the investment. 
D)  Depreciation expense. 
E)  General and administrative expenses. 
A)  Income taxes. 
B)  Revenues generated by the investment. 
C)  Cost of products generated by the investment. 
D)  Depreciation expense. 
E)  General and administrative expenses.

Question 5

The minimum acceptable rate of return on an investment, often the company's cost of capital, is called the ________.

Accepted Answer

The answer of The minimum acceptable rate of return on...

Question 6

In calculating the accounting rate of return using the straight-line method of depreciation, the annual average investment is calculated as (beginning book value + ending book value)/2.

Accepted Answer

A) True 
 B)False

Question 7

A project requires a $30,000 investment and is expected to generate end-of-period annual cash inflows as follows: $$\begin{array} { l c c c } 
\text { Year 1 } & \text { Year 2 } & \text { Year 3 } & \text { Total } \
\$ 12,000 & \$ 8,000 & \$ 10,000 & \$ 30,000
\end{array}$$ 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)  $21,000.00 
C)  ($7,461.00) 
D)  $25,033.32 
E)  ($4,966.60) 
A)  $0.00 
B)  $21,000.00 
C)  ($7,461.00) 
D)  $25,033.32 
E)  ($4,966.60)

Question 8

Using a profitability index allows management to rank projects of similar risks with different investment amounts.

Accepted Answer

A) True 
 B)False

Question 9

The net present value decision rule requires that when an asset's expected cash flows are discounted at the required rate and yield a positive net present value, the project should be ________.

Accepted Answer

acquired or accepted

Question 10

Projects with shorter payback periods have higher risk, as the company has less time to respond to unanticipated changes.

Accepted Answer

A) True 
 B)False

Question 11

A positive profitability index indicates a positive net present value.

Accepted Answer

A) True 
 B)False

Question 12

The accounting rate of return uses cash flows in its calculation.

Accepted Answer

A) True 
 B)False

Question 13

A disadvantage of using the payback period to compare investment alternatives is that:

Accepted Answer

A)  It ignores cash flows beyond the payback period. 
B)  It includes the time value of money. 
C)  It cannot be used when cash flows are not uniform. 
D)  It cannot be used if a company records depreciation. 
E)  It cannot be used to compare investments with different initial investments. 
A)  It ignores cash flows beyond the payback period. 
B)  It includes the time value of money. 
C)  It cannot be used when cash flows are not uniform. 
D)  It cannot be used if a company records depreciation. 
E)  It cannot be used to compare investments with different initial investments.

Question 14

In evaluating capital budgeting alternatives, there are two primary methods that do not consider the time value of money. These methods are ________ and ________. There are also two primary methods that consider the time value of money; these are ________ and ________.

Accepted Answer

payback period; accounting rate of retur

Question 15

A company is considering a 5-year project. The company plans to invest $60,000 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

A)  The project should be accepted. 
B)  The project should be rejected because it earns less than 10%. 
C)  The project earns more than 10% but less than 12%. At a hurdle rate of 12%, the project should be rejected. 
D)  Only 9% is acceptable. 
E)  Only 10% is acceptable. 
A)  The project should be accepted. 
B)  The project should be rejected because it earns less than 10%. 
C)  The project earns more than 10% but less than 12%. At a hurdle rate of 12%, the project should be rejected. 
D)  Only 9% is acceptable. 
E)  Only 10% is acceptable.

Question 16

When comparing investments with similar lives and risks, a company will prefer the investment with the higher rate of return.

Accepted Answer

A) True 
 B)False

Question 17

The net present value decision rule is: When an asset's expected cash flows yield a positive net present value when discounted at the required rate of return, the asset should be acquired.

Accepted Answer

A) True 
 B)False

Question 18

The ________ is computed by discounting the future net cash flows from the investment at the project's required rate of return and then subtracting the initial amount invested.

Accepted Answer

The answer of The ________ is computed by discounting the...

Question 19

The capital budgeting process involves all of the following except:

Accepted Answer

A)  Having department or plant managers submit new investment proposals. 
B)  Determining which financial institution to use for financing. 
C)  Evaluating the submitted proposals. 
D)  Forming a capital budget committee that includes accounting and finance members. 
E)  Approving or rejecting new investment proposals. 
A)  Having department or plant managers submit new investment proposals. 
B)  Determining which financial institution to use for financing. 
C)  Evaluating the submitted proposals. 
D)  Forming a capital budget committee that includes accounting and finance members. 
E)  Approving or rejecting new investment proposals.

Question 20

A minimum acceptable rate of return for an investment decision is called the:

Accepted Answer

A)  Internal rate of return. 
B)  Average rate of return. 
C)  Hurdle rate of return. 
D)  Maximum rate of return. 
E)  Payback rate of return. 
A)  Internal rate of return. 
B)  Average rate of return. 
C)  Hurdle rate of return. 
D)  Maximum rate of return. 
E)  Payback rate of return.

Capital budgeting decisions are generally based on:

When making capital budgeting decisions, companies usually prefer shorter payback periods. Explain why shorter payback periods are desirable.

The calculation of annual net cash flow from a particular investment project should include all of the following except:

The minimum acceptable rate of return on an investment, often the company's cost of capital, is called the ________.

In calculating the accounting rate of return using the straight-line method of depreciation, the annual average investment is calculated as (beginning book value + ending book value)/2.

Using a profitability index allows management to rank projects of similar risks with different investment amounts.

The net present value decision rule requires that when an asset's expected cash flows are discounted at the required rate and yield a positive net present value, the project should be ________.

Projects with shorter payback periods have higher risk, as the company has less time to respond to unanticipated changes.

A positive profitability index indicates a positive net present value.

The accounting rate of return uses cash flows in its calculation.

A disadvantage of using the payback period to compare investment alternatives is that:

In evaluating capital budgeting alternatives, there are two primary methods that do not consider the time value of money. These methods are and . There are also two primary methods that consider the time value of money; these are and .

When comparing investments with similar lives and risks, a company will prefer the investment with the higher rate of return.

The net present value decision rule is: When an asset's expected cash flows yield a positive net present value when discounted at the required rate of return, the asset should be acquired.

The ________ is computed by discounting the future net cash flows from the investment at the project's required rate of return and then subtracting the initial amount invested.

The capital budgeting process involves all of the following except:

A minimum acceptable rate of return for an investment decision is called the:

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

Exam 11: Capital Budgeting and Investment Analysis

Capital budgeting decisions are generally based on:

When making capital budgeting decisions, companies usually prefer shorter payback periods. Explain why shorter payback periods are desirable.

The calculation of annual net cash flow from a particular investment project should include all of the following except:

The minimum acceptable rate of return on an investment, often the company's cost of capital, is called the ________.

In calculating the accounting rate of return using the straight-line method of depreciation, the annual average investment is calculated as (beginning book value + ending book value)/2.

Using a profitability index allows management to rank projects of similar risks with different investment amounts.

The net present value decision rule requires that when an asset's expected cash flows are discounted at the required rate and yield a positive net present value, the project should be ________.

Projects with shorter payback periods have higher risk, as the company has less time to respond to unanticipated changes.

A positive profitability index indicates a positive net present value.

The accounting rate of return uses cash flows in its calculation.

A disadvantage of using the payback period to compare investment alternatives is that:

In evaluating capital budgeting alternatives, there are two primary methods that do not consider the time value of money. These methods are ________ and ________. There are also two primary methods that consider the time value of money; these are ________ and ________.

When comparing investments with similar lives and risks, a company will prefer the investment with the higher rate of return.

The net present value decision rule is: When an asset's expected cash flows yield a positive net present value when discounted at the required rate of return, the asset should be acquired.

The ________ is computed by discounting the future net cash flows from the investment at the project's required rate of return and then subtracting the initial amount invested.

The capital budgeting process involves all of the following except:

A minimum acceptable rate of return for an investment decision is called the:

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

In evaluating capital budgeting alternatives, there are two primary methods that do not consider the time value of money. These methods are and . There are also two primary methods that consider the time value of money; these are and .