Question 1

If the incremental revenue increased by $1 million dollars, what would be the after-tax cash inflow (income tax rate of 28 per cent)?

Accepted Answer

A)  $400 000 
B)  $1 008 000 
C)  $980 000 
D)  $720 000 
A)  $400 000 
B)  $1 008 000 
C)  $980 000 
D)  $720 000

Question 2

What is the quantitative decision rule for the net present value method?

Accepted Answer

A)  Accept investments whose return on investment exceeds the accounting rate of return. 
B)  Accept investments whose weighted average cost of capital exceeds the return on investment. 
C)  Accept investments whose required rate of return exceeds the internal rate of return. 
D)  Accept investments with a positive net present value. 
A)  Accept investments whose return on investment exceeds the accounting rate of return. 
B)  Accept investments whose weighted average cost of capital exceeds the return on investment. 
C)  Accept investments whose required rate of return exceeds the internal rate of return. 
D)  Accept investments with a positive net present value.

Question 3

In which technique is it necessary to formulate scenarios?

Accepted Answer

A)  Incremental analysis 
B)  Payback method 
C)  Real-options analysis 
D)  Accounting rate of return 
A)  Incremental analysis 
B)  Payback method 
C)  Real-options analysis 
D)  Accounting rate of return

Question 4

The advantage(s) of the payback method of evaluating investment proposals is/are:
i. it recognises the time value of money.
ii. it is easy to calculate and understand.
iii. it recognises cash flows beyond the payback period.
Which of the above statements is/are true?

Accepted Answer

A)  i and ii 
B)  ii and iii 
C)  ii 
D)  All of the given answers 
A)  i and ii 
B)  ii and iii 
C)  ii 
D)  All of the given answers

Question 5

A machine will cost $28 000. It is estimated that it will generate $8000 in after-tax savings each year during its five-year life. What is the profitability index assuming a hurdle rate of 10 per cent?

Accepted Answer

A)  1.08 
B)  0.92 
C)  1.24 
D)  1.43 
A)  1.08 
B)  0.92 
C)  1.24 
D)  1.43

Question 6

When management is unable to predict future cash flows with certainty they will reduce the required internal rate of return below the business's cost of capital.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is not a technique applied to capital expenditure decisions?

Accepted Answer

A)  Payback 
B)  Cash budgeting 
C)  Discounted cash flow analysis 
D)  Accounting rate of return 
A)  Payback 
B)  Cash budgeting 
C)  Discounted cash flow analysis 
D)  Accounting rate of return

Question 8

Charlotte Computer Services is considering purchasing equipment at $100 000. It is anticipated the equipment will have a useful life of five years. It will be depreciated on a straight-line basis. Operating revenue is expected to be $74 000 per annum and operating expenses $25 000 per annum. The equipment is subject to an investment allowance of 10 per cent and the tax rate is 30 per cent. The after-tax hurdle rate is 12 per cent. What is the tax effect of the depreciation?

Accepted Answer

A)  $3000 
B)  $21 630 
C)  $24 630 
D)  $6000 
A)  $3000 
B)  $21 630 
C)  $24 630 
D)  $6000

Question 9

The simple rate of return, rate of return on assets and the unadjusted rate of return are synonymous with:

Accepted Answer

A)  the accounting rate of return. 
B)  the payback method. 
C)  the internal rate of return. 
D)  discounted cash flow. 
A)  the accounting rate of return. 
B)  the payback method. 
C)  the internal rate of return. 
D)  discounted cash flow.

Question 10

For a capital investment of $800 000, what are the yearly cash inflows to the nearest thousand if the net present value is zero and a four-year annuity has a 12 per cent required rate of return?

Accepted Answer

A)  $296 000 
B)  $189 000 
C)  $263 000 
D)  $275 000 
A)  $296 000 
B)  $189 000 
C)  $263 000 
D)  $275 000

Question 11

Which is the optimal technique or rule for ranking investment proposals?

Accepted Answer

A)  The NPV ranking 
B)  The profitability index 
C)  The IRR ranking 
D)  There is no optimal technique; all techniques are flawed where proposals have different lives. 
A)  The NPV ranking 
B)  The profitability index 
C)  The IRR ranking 
D)  There is no optimal technique; all techniques are flawed where proposals have different lives.

Question 12

Chelonia Mydas purchased a machine for $500 000 three years ago. The machine can be fully depreciated for tax purposes over 5 years. The tax rate is 30 per cent. What is the carrying amount of this machine for tax purposes?

Accepted Answer

A)  $200 000 
B)  $140 000 
C)  $100 000 
D)  $70 000 
A)  $200 000 
B)  $140 000 
C)  $100 000 
D)  $70 000

Question 13

LB Pty Ltd recently invested $25 000 in equipment with an estimated life of five years. The manager projects the following cash flows.  
What is the payback period?

Accepted Answer

A)  2.00 years 
B)  2.50 years 
C)  3.50 years 
D)  4.00 years 
A)  2.00 years 
B)  2.50 years 
C)  3.50 years 
D)  4.00 years

Question 14

Cubbies Pty Ltd is considering the purchase of a new machine to replace an old machine. Selected cost data pertaining to the two machines is provided below.  
At the end of four years, the company plans to discontinue the product line for which the machines are used. Income taxes can be ignored. Calculate the net present value of the new machine, if Cubbies Pty Ltd's hurdle rate is 14 per cent.

Accepted Answer

A)  1.6%. 
B)  3.9%. 
C)  21.6%. 
D)  22.2%. 
A)  1.6%. 
B)  3.9%. 
C)  21.6%. 
D)  22.2%.

Question 15

Assuming interest rates average 6 per cent, how much would you need to save at the end of each year if you wished to accumulate one million dollars over 20 years?

Accepted Answer

A)  $50 000 
B)  $43 800 
C)  $27 184 
D)  $14 565 
A)  $50 000 
B)  $43 800 
C)  $27 184 
D)  $14 565

Question 16

Which of the following statements is/are true concerning the time value of money?

Accepted Answer

A)  Money to be received seven years from now has a lower present value than money to be received in three years. 
B)  Money received seven years from now will have a lower present value if a higher discount rate is used. 
C)  Money received seven years from now will have a greater present value if a higher discount rate is used. 
D)  Money to be received seven years from now has a lower present value than money to be received in three years AND money received seven years from now will have a lower present value if a higher discount rate is used. 
A)  Money to be received seven years from now has a lower present value than money to be received in three years. 
B)  Money received seven years from now will have a lower present value if a higher discount rate is used. 
C)  Money received seven years from now will have a greater present value if a higher discount rate is used. 
D)  Money to be received seven years from now has a lower present value than money to be received in three years AND money received seven years from now will have a lower present value if a higher discount rate is used.

Question 17

If the company's net profit is $1 000 000 and its income tax rate is 30 per cent, what is the income tax payment?

Accepted Answer

A)  $700 000 
B)  $30 000 
C)  $300 000 
D)  $70 000 
A)  $700 000 
B)  $30 000 
C)  $300 000 
D)  $70 000

Question 18

Bravo Pty Ltd is considering the addition of a new product line. The new product will require an initial capital outlay of $70 000 and is expected to have a five-year life cycle. The manager estimates that because of the new product, cash flow will increase over the next five years by the following amounts.  
If Bravo's hurdle rate is 14 per cent, calculate the net present value of the new product line. (Income taxes can be ignored.)

Accepted Answer

A)  $0 
B)  $71 406 
C)  $68 275 
D)  $1406 
A)  $0 
B)  $71 406 
C)  $68 275 
D)  $1406

Question 19

Investment in additional working capital for a project assumes:

Accepted Answer

A)  investment in year zero. 
B)  full recovery in the final year. 
C)  investment in year zero AND full recovery in the final year. 
D)  depreciation over the life of the project. 
A)  investment in year zero. 
B)  full recovery in the final year. 
C)  investment in year zero AND full recovery in the final year. 
D)  depreciation over the life of the project.

Question 20

Among the benefits of advanced technologies that are difficult to quantify is/are:

Accepted Answer

A)  greater flexibility. 
B)  reduction of non-value-added activities. 
C)  increased inventory levels. 
D)  greater flexibility AND reduction of non-value-added activities. 
A)  greater flexibility. 
B)  reduction of non-value-added activities. 
C)  increased inventory levels. 
D)  greater flexibility AND reduction of non-value-added activities.

If the incremental revenue increased by $1 million dollars, what would be the after-tax cash inflow (income tax rate of 28 per cent)?

What is the quantitative decision rule for the net present value method?

In which technique is it necessary to formulate scenarios?

The advantage(s) of the payback method of evaluating investment proposals is/are: i. it recognises the time value of money. ii. it is easy to calculate and understand. iii. it recognises cash flows beyond the payback period. Which of the above statements is/are true?

A machine will cost $28 000. It is estimated that it will generate $8000 in after-tax savings each year during its five-year life. What is the profitability index assuming a hurdle rate of 10 per cent?

When management is unable to predict future cash flows with certainty they will reduce the required internal rate of return below the business's cost of capital.

Which of the following is not a technique applied to capital expenditure decisions?

The simple rate of return, rate of return on assets and the unadjusted rate of return are synonymous with:

For a capital investment of $800 000, what are the yearly cash inflows to the nearest thousand if the net present value is zero and a four-year annuity has a 12 per cent required rate of return?

Which is the optimal technique or rule for ranking investment proposals?

Chelonia Mydas purchased a machine for $500 000 three years ago. The machine can be fully depreciated for tax purposes over 5 years. The tax rate is 30 per cent. What is the carrying amount of this machine for tax purposes?

LB Pty Ltd recently invested $25 000 in equipment with an estimated life of five years. The manager projects the following cash flows. What is the payback period?

Assuming interest rates average 6 per cent, how much would you need to save at the end of each year if you wished to accumulate one million dollars over 20 years?

Which of the following statements is/are true concerning the time value of money?

If the company's net profit is $1 000 000 and its income tax rate is 30 per cent, what is the income tax payment?

Investment in additional working capital for a project assumes:

Among the benefits of advanced technologies that are difficult to quantify is/are:

Management Accounting: Information for Creating Value and Managing Resources

Management Accounting: Cost Terms and Concepts

Cost Behaviour, Cost Drivers and Cost Estimation

Product Costing Systems

Process Costing and Operation Costing

Service Costing

A Closer Look at Overhead Costs

Activity-Based Costing

Budgeting Systems

Standard Costs for Control: Direct Material and Direct Labour

Standard Costs for Control: Flexible Budgets and Manufacturing Overhead

Managing and Reporting Performance

Financial Performance Measures and Incentive Schemes

Strategic Performance Measurement Systems

Managing Suppliers and Customers

Managing Costs and Quality

Sustainability and Management Accounting

Cost Volume Profit Analysis

Information for Decisions: Relevant Costs and Benefits

Pricing and Product Mix Decisions

Filters

Exam 21: Information for Capital Expenditure Decisions

If the incremental revenue increased by $1 million dollars, what would be the after-tax cash inflow (income tax rate of 28 per cent)?

What is the quantitative decision rule for the net present value method?

In which technique is it necessary to formulate scenarios?

The advantage(s) of the payback method of evaluating investment proposals is/are: i. it recognises the time value of money. ii. it is easy to calculate and understand. iii. it recognises cash flows beyond the payback period. Which of the above statements is/are true?

A machine will cost $28 000. It is estimated that it will generate $8000 in after-tax savings each year during its five-year life. What is the profitability index assuming a hurdle rate of 10 per cent?

When management is unable to predict future cash flows with certainty they will reduce the required internal rate of return below the business's cost of capital.

Which of the following is not a technique applied to capital expenditure decisions?

The simple rate of return, rate of return on assets and the unadjusted rate of return are synonymous with:

For a capital investment of $800 000, what are the yearly cash inflows to the nearest thousand if the net present value is zero and a four-year annuity has a 12 per cent required rate of return?

Which is the optimal technique or rule for ranking investment proposals?

Chelonia Mydas purchased a machine for $500 000 three years ago. The machine can be fully depreciated for tax purposes over 5 years. The tax rate is 30 per cent. What is the carrying amount of this machine for tax purposes?

LB Pty Ltd recently invested $25 000 in equipment with an estimated life of five years. The manager projects the following cash flows. What is the payback period?

Assuming interest rates average 6 per cent, how much would you need to save at the end of each year if you wished to accumulate one million dollars over 20 years?

Which of the following statements is/are true concerning the time value of money?

If the company's net profit is $1 000 000 and its income tax rate is 30 per cent, what is the income tax payment?

Investment in additional working capital for a project assumes:

Among the benefits of advanced technologies that are difficult to quantify is/are:

Management Accounting: Information for Creating Value and Managing Resources

Management Accounting: Cost Terms and Concepts

Cost Behaviour, Cost Drivers and Cost Estimation

Product Costing Systems

Process Costing and Operation Costing

Service Costing

A Closer Look at Overhead Costs

Activity-Based Costing

Budgeting Systems

Standard Costs for Control: Direct Material and Direct Labour

Standard Costs for Control: Flexible Budgets and Manufacturing Overhead

Managing and Reporting Performance

Financial Performance Measures and Incentive Schemes

Strategic Performance Measurement Systems

Managing Suppliers and Customers

Managing Costs and Quality

Sustainability and Management Accounting

Cost Volume Profit Analysis

Information for Decisions: Relevant Costs and Benefits

Pricing and Product Mix Decisions

Filters