Question 1

An investment allowance is a one-off tax deduction in the year the asset is sold.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements about the accounting rate of return method is/are correct?
i.It is a simple way of screening investment proposals
ii.It is used by some managers because they believe this method parallels financial accounting statements.
iii.It is more accurate than the payback method because it considers the time value of money.

Accepted Answer

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

Question 3

A hurdle rate is generally based on an estimate of the ___________________ of acquiring capital.

Accepted Answer

A)  weighted average cost 
B)  average cost 
C)  total cost 
D)  investment opportunity rate 
A)  weighted average cost 
B)  average cost 
C)  total cost 
D)  investment opportunity rate

Question 4

A series of equivalent cash flows is called an:

Accepted Answer

A)  accretion 
B)  annuity 
C)  accrual 
D)  accumulation 
A)  accretion 
B)  annuity 
C)  accrual 
D)  accumulation

Question 5

The cost of capital is the maximum return needed to compensate suppliers of capital for committing resources to a project.

Accepted Answer

A) True 
 B)False

Question 6

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 is the net present value of the computer system?

Accepted Answer

A)  $79 057 
B)  $11 658 
C)  $4057 
D)  $63 342 
A)  $79 057 
B)  $11 658 
C)  $4057 
D)  $63 342

Question 7

When assessing three projects with profitability indexes of 1.05,1.7 and 1.2,unless all projects have the same lives it is impossible to rank them accurately.

Accepted Answer

A) True 
 B)False

Question 8

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 9

Chelonia Mydas recently 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 10

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 net present value of the investment?

Accepted Answer

A)  $45 282 
B)  $7545 
C)  $70 825 
D)  $48 282 
A)  $45 282 
B)  $7545 
C)  $70 825 
D)  $48 282

Question 11

Which of the following is not an advantage of using the net present value (NPV)approach to evaluate investments?

Accepted Answer

A)  NPV is relatively easy to calculate. 
B)  NPV calculations can be adjusted for risks. 
C)  Unlike internal rate of return,NPV always yield only one Answer. 
D)  NPV allows the comparison of investments with different sizes of initial investment. 
A)  NPV is relatively easy to calculate. 
B)  NPV calculations can be adjusted for risks. 
C)  Unlike internal rate of return,NPV always yield only one Answer. 
D)  NPV allows the comparison of investments with different sizes of initial investment.

Question 12

The accounting rate of return equals:

Accepted Answer

A)  (average incremental revenue - average incremental expenses including depreciation)/ average investment 
B)  (average incremental revenue - average investment)/ average incremental expenses 
C)  (average investment - average incremental income)/ average investment 
D)  (average investment - average incremental income)/ average incremental income 
A)  (average incremental revenue - average incremental expenses including depreciation)/ average investment 
B)  (average incremental revenue - average investment)/ average incremental expenses 
C)  (average investment - average incremental income)/ average investment 
D)  (average investment - average incremental income)/ average incremental income

Question 13

The profitability index is calculated by:

Accepted Answer

A)  multiplying the present value of inflows by the initial investment 
B)  multiplying the initial investment by the discount rate 
C)  dividing the present value of net inflows by the initial investment 
D)  dividing the initial investment by the present value of net inflows 
A)  multiplying the present value of inflows by the initial investment 
B)  multiplying the initial investment by the discount rate 
C)  dividing the present value of net inflows by the initial investment 
D)  dividing the initial investment by the present value of net inflows

Question 14

The ___________ the discount rate used in a net present value analysis,the ___________ the present value of all future cash flows.

Accepted Answer

A)  lower,higher 
B)  lower,lower 
C)  higher,lower 
D)  EITHER lower,higher OR higher,lower 
A)  lower,higher 
B)  lower,lower 
C)  higher,lower 
D)  EITHER lower,higher OR higher,lower

Question 15

Capital budgeting decisions involve decisions about:

Accepted Answer

A)  emergency situations 
B)  future cash inflows and cash outflows 
C)  short-run planning situations 
D)  cash inflows and outflows in current years 
A)  emergency situations 
B)  future cash inflows and cash outflows 
C)  short-run planning situations 
D)  cash inflows and outflows in current years

Question 16

The profitability index is a tool for ranking investment proposals.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following capital investment decision methods typically adjust for risk?

Accepted Answer

A)  Net present value 
B)  Internal rate of return 
C)  Payback 
D)  Accounting rate of return 
A)  Net present value 
B)  Internal rate of return 
C)  Payback 
D)  Accounting rate of return

Question 18

One criterion that managers sometimes apply in ranking investment proposals is called the:

Accepted Answer

A)  profitability index 
B)  annuity index 
C)  investment opportunity index 
D)  capital ranking approach 
A)  profitability index 
B)  annuity index 
C)  investment opportunity index 
D)  capital ranking approach

Question 19

Which of the following statements regarding the assumptions underlying discounted cash flow analysis is/are true?
i.All cash flows are treated as though they occur at year-end
ii.Cash flows associated with the investment project are treated as if they are known with certainty.
iii.The discount rate is always the same as the average cost of capital.

Accepted Answer

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

Question 20

The internal rate of return for a proposed investment can be calculated:

Accepted Answer

A)  if the cash flow table is identical to future values of a series of cash flows 
B)  if the future value of a series of cash flows can be arrived at by the annuity accumulation factor 
C)  by finding a discount rate that yields a zero net present value for a proposed investment 
D)  by finding a discount rate that yields a positive net present value for a proposed investment 
A)  if the cash flow table is identical to future values of a series of cash flows 
B)  if the future value of a series of cash flows can be arrived at by the annuity accumulation factor 
C)  by finding a discount rate that yields a zero net present value for a proposed investment 
D)  by finding a discount rate that yields a positive net present value for a proposed investment

An investment allowance is a one-off tax deduction in the year the asset is sold.

A hurdle rate is generally based on an estimate of the ___________________ of acquiring capital.

A series of equivalent cash flows is called an:

The cost of capital is the maximum return needed to compensate suppliers of capital for committing resources to a project.

When assessing three projects with profitability indexes of 1.05,1.7 and 1.2,unless all projects have the same lives it is impossible to rank them accurately.

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?

Chelonia Mydas recently 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?

Which of the following is not an advantage of using the net present value (NPV)approach to evaluate investments?

The accounting rate of return equals:

The profitability index is calculated by:

The _ the discount rate used in a net present value analysis,the _ the present value of all future cash flows.

Capital budgeting decisions involve decisions about:

The profitability index is a tool for ranking investment proposals.

Which of the following capital investment decision methods typically adjust for risk?

One criterion that managers sometimes apply in ranking investment proposals is called the:

The internal rate of return for a proposed investment can be calculated:

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

An investment allowance is a one-off tax deduction in the year the asset is sold.

A hurdle rate is generally based on an estimate of the ___________________ of acquiring capital.

A series of equivalent cash flows is called an:

The cost of capital is the maximum return needed to compensate suppliers of capital for committing resources to a project.

When assessing three projects with profitability indexes of 1.05,1.7 and 1.2,unless all projects have the same lives it is impossible to rank them accurately.

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?

Chelonia Mydas recently 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?

Which of the following is not an advantage of using the net present value (NPV)approach to evaluate investments?

The accounting rate of return equals:

The profitability index is calculated by:

The ___________ the discount rate used in a net present value analysis,the ___________ the present value of all future cash flows.

Capital budgeting decisions involve decisions about:

The profitability index is a tool for ranking investment proposals.

Which of the following capital investment decision methods typically adjust for risk?

One criterion that managers sometimes apply in ranking investment proposals is called the:

The internal rate of return for a proposed investment can be calculated:

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

The _ the discount rate used in a net present value analysis,the _ the present value of all future cash flows.