Question 1

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 C

Question 2

The mayor of Smalltown,Western Australia,is considering the purchase of a computer system to automate the city's rate collections.The system costs $75 000 and has an estimated life of five years.The mayor estimates the following savings will result if the system is purchased.If Smalltown uses a 10 per cent discount rate for capital budgeting decisions,what can be said about the internal rate of return (IRR)if the net present value at 12 per cent is positive?

Accepted Answer

A)  The IRR is greater than 12 per cent 
B)  The IRR is between 10 per cent and 12 per cent 
C)  The IRR is less than 10 per cent 
D)  Insufficient information to determine 
A)  The IRR is greater than 12 per cent 
B)  The IRR is between 10 per cent and 12 per cent 
C)  The IRR is less than 10 per cent 
D)  Insufficient information to determine A

Question 3

Suppose a firm has an asset that originally cost $5000 and currently has accumulated depreciation of $2000.The firm is subject to a 28 per cent income tax rate.Suppose the firm sells the asset for $2000.What will be the loss without regard to taxes?

Accepted Answer

A)  ($1000) 
B)  ($3000) 
C)  ($1120) 
D)  ($2000) 
A)  ($1000) 
B)  ($3000) 
C)  ($1120) 
D)  ($2000) A

Question 4

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 5

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 6

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 7

When undertaking a net present value analysis,the first step in the process would be to determine:

Accepted Answer

A)  the interest rate at the end of the proposed investment period 
B)  the internal rate of return on comparable projects in the past 
C)  the return on assets for the organisation 
D)  the cash flows during each year of the proposed investment 
A)  the interest rate at the end of the proposed investment period 
B)  the internal rate of return on comparable projects in the past 
C)  the return on assets for the organisation 
D)  the cash flows during each year of the proposed investment

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 technique that compares a project's actual cash flows with the cash flows predicted in the original capital budget proposal is a post-completion audit.

Accepted Answer

A) True 
 B)False

Question 10

Capital budgeting is a tool required for:

Accepted Answer

A)  long-term decisions 
B)  higher sales and greater profits 
C)  adequately financing various short- and long-term aspects of an organisation 
D)  adequate capital investment in areas where it is least needed 
A)  long-term decisions 
B)  higher sales and greater profits 
C)  adequately financing various short- and long-term aspects of an organisation 
D)  adequate capital investment in areas where it is least needed

Question 11

Which of the following is not an assumption of the models that analyse cash flows for capital investment decisions?

Accepted Answer

A)  It is assumed that all cash flows occur at the same time each year. 
B)  It is assumed that all cash flows occur at the beginning of the year. 
C)  Cash flows are assumed to be in the same period as accrual accounting revenue and expenses are recognised. 
D)  Tax implications of cash flows should be included. 
A)  It is assumed that all cash flows occur at the same time each year. 
B)  It is assumed that all cash flows occur at the beginning of the year. 
C)  Cash flows are assumed to be in the same period as accrual accounting revenue and expenses are recognised. 
D)  Tax implications of cash flows should be included.

Question 12

Which of the following statements about income taxes and capital budgeting decisions is/are correct?
i.Income taxes influence the amount of cash inflows and outflows in capital budgeting decisions
ii.Income taxes are not cash flows.
iii.The effect of income taxes is not necessarily in the same year as the cash flow.

Accepted Answer

A)  i 
B)  ii 
C)  ii and iii 
D)  i and iii 
A)  i 
B)  ii 
C)  ii and iii 
D)  i and iii

Question 13

Calculate the future value of money from the following:

Accepted Answer

A)  $150.00 
B)  $133.10 
C)  $161.05 
D)  $155.65 
A)  $150.00 
B)  $133.10 
C)  $161.05 
D)  $155.65

Question 14

The accounting rate of return method focuses on:

Accepted Answer

A)  total accounting profit,which is based on accrual accounting procedures 
B)  the incremental accounting profit that results from a project 
C)  cash inflows from the project 
D)  tax savings from a project 
A)  total accounting profit,which is based on accrual accounting procedures 
B)  the incremental accounting profit that results from a project 
C)  cash inflows from the project 
D)  tax savings from a project

Question 15

If the initial investment is $4000 and the annual cash inflow is $500,what is the payback period?

Accepted Answer

A)  20 years 
B)  8 years 
C)  4 years 
D)  2 years 
A)  20 years 
B)  8 years 
C)  4 years 
D)  2 years

Question 16

If a proposal's profitability index is greater than one,the:

Accepted Answer

A)  net present value is negative. 
B)  net present value is positive. 
C)  net present value cannot be determined by the profitability index. 
D)  proposal should be rejected. 
A)  net present value is negative. 
B)  net present value is positive. 
C)  net present value cannot be determined by the profitability index. 
D)  proposal should be rejected.

Question 17

Veritas Ltd is considering investing in a new machine which costs $450 000.For accounting purposes this machine can be fully depreciated over 6 years;but for tax purposes,the machine can be fully depreciated over 5 years.The machine has no resale value.The annual cost savings resulting from the purpose of this machine is $100 000.Assume a tax rate of 30 per cent.The annual net cash flow is:

Accepted Answer

A)  $97 000 
B)  $92 500 
C)  $17 500 
D)  $7000 
A)  $97 000 
B)  $92 500 
C)  $17 500 
D)  $7000

Question 18

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 19

When comparing the net present value [NPV] method with the internal rate of return [IRR] method,NPV considers the time value of money,but IRR does not.

Accepted Answer

A) True 
 B)False

Question 20

The manager of Malan Pty Ltd wants to buy a new machine to replace the one currently being used.The new machine will cost $100 000 with no disposal value at the end of a five-year useful life.The manager estimates that the machine will reduce annual operating costs by $30 000.Depreciation will be $20 000 per year for five years.The tax rate for each year is expected to be 20 per cent and the company has an after-tax hurdle rate of 12 per cent.What is the after-tax net present value of the machine?

Accepted Answer

A)  $100 940 
B)  $8150 
C)  $940 
D)  ($13 480) 
A)  $100 940 
B)  $8150 
C)  $940 
D)  ($13 480)

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?

Suppose a firm has an asset that originally cost $5000 and currently has accumulated depreciation of $2000.The firm is subject to a 28 per cent income tax rate.Suppose the firm sells the asset for $2000.What will be the loss without regard to taxes?

Investment in additional working capital for a project assumes:

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?

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

When undertaking a net present value analysis,the first step in the process would be to determine:

The technique that compares a project's actual cash flows with the cash flows predicted in the original capital budget proposal is a post-completion audit.

Capital budgeting is a tool required for:

Which of the following is not an assumption of the models that analyse cash flows for capital investment decisions?

Calculate the future value of money from the following:

The accounting rate of return method focuses on:

If the initial investment is $4000 and the annual cash inflow is $500,what is the payback period?

If a proposal's profitability index is greater than one,the:

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

When comparing the net present value [NPV] method with the internal rate of return [IRR] method,NPV considers the time value of money,but IRR does not.

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

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Exam 21: Information for Capital Expenditure Decisions

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?

Suppose a firm has an asset that originally cost $5000 and currently has accumulated depreciation of $2000.The firm is subject to a 28 per cent income tax rate.Suppose the firm sells the asset for $2000.What will be the loss without regard to taxes?

Investment in additional working capital for a project assumes:

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?

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

When undertaking a net present value analysis,the first step in the process would be to determine:

The technique that compares a project's actual cash flows with the cash flows predicted in the original capital budget proposal is a post-completion audit.

Capital budgeting is a tool required for:

Which of the following is not an assumption of the models that analyse cash flows for capital investment decisions?

Calculate the future value of money from the following:

The accounting rate of return method focuses on:

If the initial investment is $4000 and the annual cash inflow is $500,what is the payback period?

If a proposal's profitability index is greater than one,the:

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

When comparing the net present value [NPV] method with the internal rate of return [IRR] method,NPV considers the time value of money,but IRR does not.

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