Question 1

The main concept of time value of money is:

Accepted Answer

A)  that cash flows received in the distant future are not as valuable as cash flows received in the near future 
B)  the recognition of all relevant costs in absolute dollars 
C)  that cash flows received in different years should be treated as equal 
D)  that cash payments made in the future have the same value today 
A)  that cash flows received in the distant future are not as valuable as cash flows received in the near future 
B)  the recognition of all relevant costs in absolute dollars 
C)  that cash flows received in different years should be treated as equal 
D)  that cash payments made in the future have the same value today

Question 2

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 3

Which of the following statements is incorrect?

Accepted Answer

A)  Discounted cash flow techniques explicitly recognise the time value of money. 
B)  Payback recognises the time value of money. 
C)  Accounting rate of return recognises the time value of money. 
D)  Payback recognises the time value of money AND accounting rate of return recognises the time value of money. 
A)  Discounted cash flow techniques explicitly recognise the time value of money. 
B)  Payback recognises the time value of money. 
C)  Accounting rate of return recognises the time value of money. 
D)  Payback recognises the time value of money AND accounting rate of return recognises the time value of money.

Question 4

A piece of equipment has an estimated five-year life,an internal rate of return of 12 per cent and estimated annual savings of $15 000.What was the cost of the equipment?

Accepted Answer

A)  $75 000 
B)  $26 435 
C)  $54 075 
D)  $60 000 
A)  $75 000 
B)  $26 435 
C)  $54 075 
D)  $60 000

Question 5

The internal rate of return is a capital budgeting method that calculates a discount rate at which the net present value of the project is always positive.

Accepted Answer

A) True 
 B)False

Question 6

What will $5000 invested at 10 per cent today accumulate to at the end of five years?

Accepted Answer

A)  $8810 
B)  $5500 
C)  $8055 
D)  $30 525 
A)  $8810 
B)  $5500 
C)  $8055 
D)  $30 525

Question 7

The accounting rate of return is a capital investment decision model that does not provide for the inclusion of tax effects.

Accepted Answer

A) True 
 B)False

Question 8

Wakefield Company management evaluates future projects based on their profitability index.The company is currently reviewing five similar projects and must choose one project.Pertinent information regarding the projects is as follows.Which project should Wakefield Company select if the decision is based entirely on profitability index?

Accepted Answer

A)  Project 1 
B)  Project 2 
C)  Project 3 
D)  Project 4 
A)  Project 1 
B)  Project 2 
C)  Project 3 
D)  Project 4

Question 9

Magic Pty Ltd owes Jordan Pty Ltd money for the purchase of equipment.Jordan Pty Ltd has given Magic Pty Ltd three payment options:
Option 1: Immediate payment of $38 000 with no further payment
Option 2: Three annual payments of $15 000 made at the end of each of the next three years.Option 3: A single payment of $48 000 made at the end of the three years.Magic Pty Ltd uses a hurdle rate of 10 per cent for investment decisions.Which option should Magic choose and what is the present value of that option?

Accepted Answer

A)  Option 1 $38 000 
B)  Option 2 $37 305 
C)  Option 3 $34 164 
D)  Option 3 $36 048 
A)  Option 1 $38 000 
B)  Option 2 $37 305 
C)  Option 3 $34 164 
D)  Option 3 $36 048

Question 10

One limitation of conventional capital expenditure analysis is "unrealistic status quo".This refers to:

Accepted Answer

A)  The assumption that the tax rate remains unchanged throughout the life of an investment. 
B)  The assumption that the cost of capital remains unchanged throughout the life of an investment. 
C)  Unrealistic estimates of expected time horizon of a project. 
D)  The assumption that the current cash flow of the company will remain unchanged if the proposed investment does not go ahead. 
A)  The assumption that the tax rate remains unchanged throughout the life of an investment. 
B)  The assumption that the cost of capital remains unchanged throughout the life of an investment. 
C)  Unrealistic estimates of expected time horizon of a project. 
D)  The assumption that the current cash flow of the company will remain unchanged if the proposed investment does not go ahead.

Question 11

The following data applies:
What would be the present value of the after-tax cash flow for year 0?

Accepted Answer

A)  ($10 000) 
B)  $0 
C)  $4726 
D)  $4000 
A)  ($10 000) 
B)  $0 
C)  $4726 
D)  $4000

Question 12

Consider the following statements.Since money has a time value:
i.businesses will take tax deductions as early as possible
ii.businesses will take tax deductions as late as possible.
iii.businesses will obtain a greater tax benefit by using the diminishing value method of depreciation.Which of the above statements is/are correct?

Accepted Answer

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

Question 13

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 annual after-tax cash flow for years 1 to 5 associated with the purchase of the new machine?

Accepted Answer

A)  $30 000 
B)  $28 000 
C)  $24 000 
D)  $22 000 
A)  $30 000 
B)  $28 000 
C)  $24 000 
D)  $22 000

Question 14

According to the net present value method,if the present value of cost savings exceeds the acquisition cost of a new machine:

Accepted Answer

A)  the old machine should be retained. 
B)  the new machine should be purchased. 
C)  the old machine should be sold off without adding the new machine. 
D)  the old machine should be scrapped. 
A)  the old machine should be retained. 
B)  the new machine should be purchased. 
C)  the old machine should be sold off without adding the new machine. 
D)  the old machine should be scrapped.

Question 15

Investment project E has equal annual cash flows over its lifetime.The present value of the cash inflows from project E:

Accepted Answer

A)  can be measured using the present value of an annuity 
B)  must be measured year-by-year using a present value table 
C)  can be measured using the future value of an annuity 
D)  Must be measured year-by-year using a future value table 
A)  can be measured using the present value of an annuity 
B)  must be measured year-by-year using a present value table 
C)  can be measured using the future value of an annuity 
D)  Must be measured year-by-year using a future value table

Question 16

Volo Ltd has recently purchased 2 machines at $50 000 each.Each machine has a useful life of 5 years,and will be fully depreciated at the end of their useful lives.The government provides an investment allowance of 15 per cent.The tax rate is 30 per cent.The net cash flow impact of the investment allowance is:

Accepted Answer

A)  $900 
B)  $4500 
C)  $5250 
D)  $15 000 
A)  $900 
B)  $4500 
C)  $5250 
D)  $15 000

Question 17

What is the internal rate of return?

Accepted Answer

A)  The discount rate at which the present value of expected cash inflows and outflows is equal. 
B)  The discount rate that makes the net present value of the cash flows equal zero. 
C)  The discount rate at which the present value of expected cash inflows and outflows is equal AND the discount rate that makes the net present value of the cash flows equal zero. 
D)  The present value factor used to discount cash flows. 
A)  The discount rate at which the present value of expected cash inflows and outflows is equal. 
B)  The discount rate that makes the net present value of the cash flows equal zero. 
C)  The discount rate at which the present value of expected cash inflows and outflows is equal AND the discount rate that makes the net present value of the cash flows equal zero. 
D)  The present value factor used to discount cash flows.

Question 18

A project's time-adjusted rate of return is the actual economic return earned by the asset over its life.It is also known as the:

Accepted Answer

A)  discounted cash flow 
B)  net present value 
C)  annuity discount factor 
D)  internal rate of return 
A)  discounted cash flow 
B)  net present value 
C)  annuity discount factor 
D)  internal rate of return

Question 19

Which of the following statements is incorrect?

Accepted Answer

A)  Cash flows should include the effect from taxation depreciation not accounting depreciation. 
B)  Cash flows should include the effect from accounting depreciation not taxation depreciation. 
C)  Cash flows never include the effect from depreciation of any kind. 
D)  Cash flows should include the effect from accounting depreciation not taxation depreciation AND cash flows never include the effect from depreciation of any kind. 
A)  Cash flows should include the effect from taxation depreciation not accounting depreciation. 
B)  Cash flows should include the effect from accounting depreciation not taxation depreciation. 
C)  Cash flows never include the effect from depreciation of any kind. 
D)  Cash flows should include the effect from accounting depreciation not taxation depreciation AND cash flows never include the effect from depreciation of any kind.

Question 20

The assumption that current cash flows will be maintained if the project does not go ahead,contributes to investment in advanced technologies being rejected when using the net present value investment decision model.

Accepted Answer

A) True 
 B)False

The main concept of time value of money is:

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

Which of the following statements is incorrect?

A piece of equipment has an estimated five-year life,an internal rate of return of 12 per cent and estimated annual savings of $15 000.What was the cost of the equipment?

The internal rate of return is a capital budgeting method that calculates a discount rate at which the net present value of the project is always positive.

What will $5000 invested at 10 per cent today accumulate to at the end of five years?

The accounting rate of return is a capital investment decision model that does not provide for the inclusion of tax effects.

One limitation of conventional capital expenditure analysis is "unrealistic status quo".This refers to:

The following data applies: What would be the present value of the after-tax cash flow for year 0?

According to the net present value method,if the present value of cost savings exceeds the acquisition cost of a new machine:

Investment project E has equal annual cash flows over its lifetime.The present value of the cash inflows from project E:

What is the internal rate of return?

A project's time-adjusted rate of return is the actual economic return earned by the asset over its life.It is also known as the:

Which of the following statements is incorrect?

The assumption that current cash flows will be maintained if the project does not go ahead,contributes to investment in advanced technologies being rejected when using the net present value investment decision model.

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

The main concept of time value of money is:

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

Which of the following statements is incorrect?

A piece of equipment has an estimated five-year life,an internal rate of return of 12 per cent and estimated annual savings of $15 000.What was the cost of the equipment?

The internal rate of return is a capital budgeting method that calculates a discount rate at which the net present value of the project is always positive.

What will $5000 invested at 10 per cent today accumulate to at the end of five years?

The accounting rate of return is a capital investment decision model that does not provide for the inclusion of tax effects.

One limitation of conventional capital expenditure analysis is "unrealistic status quo".This refers to:

The following data applies: What would be the present value of the after-tax cash flow for year 0?

According to the net present value method,if the present value of cost savings exceeds the acquisition cost of a new machine:

Investment project E has equal annual cash flows over its lifetime.The present value of the cash inflows from project E:

What is the internal rate of return?

A project's time-adjusted rate of return is the actual economic return earned by the asset over its life.It is also known as the:

Which of the following statements is incorrect?

The assumption that current cash flows will be maintained if the project does not go ahead,contributes to investment in advanced technologies being rejected when using the net present value investment decision model.

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