Question 1

Which of the following is an example of an independent project?

Accepted Answer

A)  A manufacturing plant considering a major overhaul of an existing machine or replacing the existing machine with a new model. 
B)  A hospital considering the purchase of a new MRI machine and a new cardiac monitoring system. 
C)  A bank deciding between keeping a manual check sorting process or an automated sort process. 
D)  A retailer deciding between an inventory management system offered by two different vendors. 
A)  A manufacturing plant considering a major overhaul of an existing machine or replacing the existing machine with a new model. 
B)  A hospital considering the purchase of a new MRI machine and a new cardiac monitoring system. 
C)  A bank deciding between keeping a manual check sorting process or an automated sort process. 
D)  A retailer deciding between an inventory management system offered by two different vendors.

Question 2

Projects that if accepted or rejected do NOT affect the cash flows of projects are called:

Accepted Answer

A)  Dependent projects 
B)  Mutually exclusive projects 
C)  Independent projects 
D)  Both b and c 
A)  Dependent projects 
B)  Mutually exclusive projects 
C)  Independent projects 
D)  Both b and c

Question 3

The difference between the present value of future cash flows and the initial investment outlay is called the
__________ value.

Accepted Answer

The answer of The difference between the present value of...

Question 4

Chinchilla Company is considering the purchase of a new machine for $57,000. The machine would generate an annual cash flow of $18,228 for five years. At the end of five years, the machine would have no salvage value. The company's cost of capital is 12 percent. The company uses straight-line depreciation with no mid-year convention. What is the internal rate of return for the machine rounded to the nearest percent, assuming no taxes are paid?

Accepted Answer

A)  12% 
B)  18% 
C)  14% 
D)  16% 
A)  12% 
B)  18% 
C)  14% 
D)  16%

Question 5

The present value of $4,000 to be received each year for three years and earning a 10 percent return (rounded) is

Accepted Answer

A)  $11,120. 
B)  $9,948. 
C)  $9,822. 
D)  $9,200. 
A)  $11,120. 
B)  $9,948. 
C)  $9,822. 
D)  $9,200.

Question 6

The payback period is the time required for a company to recover its initial investment.

Accepted Answer

A) True 
 B)False

Question 7

A firm is considering a project with an annual cash flow of $200,000. The project would have a 7-year life, and the company uses a discount rate of 10 percent. Ignoring income taxes, what is the maximum amount the company could invest in the project and have the project still be acceptable?

Accepted Answer

A)  $718,200 
B)  $1,400,000 
C)  $973,600 
D)  $200,000 
A)  $718,200 
B)  $1,400,000 
C)  $973,600 
D)  $200,000

Question 8

Linda's Graphic Designs is considering the purchase of a used color Laser Printer costing $38,400. The Printer would generate an annual cash flow of $16,000 for three years. At the end of three years, the Printer would have no salvage value. The company's cost of capital is 10 percent. The company uses straight-line depreciation with no mid-year convention. What is the internal rate of return to the nearest percent for the Printer, assuming no taxes are paid?

Accepted Answer

A)  8% 
B)  10% 
C)  12% 
D)  42% 
A)  8% 
B)  10% 
C)  12% 
D)  42%

Question 9

A firm is evaluating a project that has a net present value of $0 when a discount rate of 9 percent is used. A discount rate of 7 percent will result in a

Accepted Answer

A)  negative net present value. 
B)  positive net present value. 
C)  net present value of $0. 
D)  the question cannot be answered based upon the information provided. 
A)  negative net present value. 
B)  positive net present value. 
C)  net present value of $0. 
D)  the question cannot be answered based upon the information provided.

Question 10

Discounting models for making capital decisions ignore the time value of money.

Accepted Answer

A) True 
 B)False

Question 11

A firm is considering two mutually exclusive projects with the following cash flows: Project X Project Y
Year 1 $ 40,000 $120,000
Year 2 80,000 80,000
Year 3 120,000 40,000
Each project requires an investment of $100,000. The cost of capital is 10 percent.
Which project will have the higher net present value?

Accepted Answer

A)  Project X 
B)  Project Y 
C)  Project X and Project Y will have the same net present value. 
D)  It is not possible to answer the question based upon the information provided. 
A)  Project X 
B)  Project Y 
C)  Project X and Project Y will have the same net present value. 
D)  It is not possible to answer the question based upon the information provided.

Question 12

Melancholy Company is considering the purchase of production equipment that costs $800,000. The equipment is expected to generate an annual cash flow of $250,000 and have a useful life of five years with no salvage value. The firm's cost of capital is 12 percent. The company uses the straight-line method of depreciation with no mid- year convention. There are no income taxes. The payback period in years for the project is

Accepted Answer

A)  3.20 years. 
B)  3.25 years. 
C)  2.90 years. 
D)  4.20 years. 
A)  3.20 years. 
B)  3.25 years. 
C)  2.90 years. 
D)  4.20 years.

Question 13

NPV differs from IRR:

Accepted Answer

A)  NPV measures profitability in absolute terms, whereas the IRR method measures profitability in relative terms. 
B)  IRR should be used for choosing among competing, mutually exclusive projects. 
C)  NPV considers the time value of money and IRR does not. 
D)  Both NPV and IRR will generate the same decisions. 
A)  NPV measures profitability in absolute terms, whereas the IRR method measures profitability in relative terms. 
B)  IRR should be used for choosing among competing, mutually exclusive projects. 
C)  NPV considers the time value of money and IRR does not. 
D)  Both NPV and IRR will generate the same decisions.

Question 14

Spaniel Company is considering the purchase of a new machine for $80,000. The machine would generate an annual cash flow before depreciation and taxes of $28,778 for five years. At the end of five years, the machine would have no salvage value. The company's cost of capital is 12 percent. The company uses straight-line depreciation with no mid-year convention and has a 40 percent tax rate. What is the accounting rate of return on the original investment in the machine approximated to two decimal points?

Accepted Answer

A)  9.58% 
B)  19.17% 
C)  15.97% 
D)  35.97% 
A)  9.58% 
B)  19.17% 
C)  15.97% 
D)  35.97%

Question 15

Laramie Corporation is considering an investment in equipment for $20,000. Laramie uses the straight-line method of depreciation with no mid-year convention. In addition, its tax rate is 40 percent, and the life of the equipment is five years with no salvage value. The expected income before depreciation and taxes is projected to be $10,000 per year. The cost of capital is 20 percent. What is the net present value of the investment?

Accepted Answer

A)  $(1,366) 
B)  $2,732 
C)  $22,991 
D)  $22,000 
A)  $(1,366) 
B)  $2,732 
C)  $22,991 
D)  $22,000

Question 16

Information about a project Wunderbar Company is considering is as follows:   The property is considered 5-year property for tax purposes. The company plans to use MACRS and dispose of the
Property at the end of the sixth year; no salvage value is expected. Assume all cash flows occur at the end of the year. Round amounts to dollars.
The tax savings from depreciation in Year 2 would be

Accepted Answer

A)  $48,000. 
B)  $64,800. 
C)  $82,400. 
D)  $76,800. 
A)  $48,000. 
B)  $64,800. 
C)  $82,400. 
D)  $76,800.

Question 17

Which of the following methods consider the time value of money?

Accepted Answer

A)  payback and accounting rate of return 
B)  payback and internal rate of return 
C)  internal rate of return and accounting rate of return 
D)  internal rate of return and net present value 
A)  payback and accounting rate of return 
B)  payback and internal rate of return 
C)  internal rate of return and accounting rate of return 
D)  internal rate of return and net present value

Question 18

Under the current tax law, an asset that is classified as 7-year property and has a cost of $400,000 would result in a depreciation deduction in Year 3 of

Accepted Answer

A)  $97,920. 
B)  $69,960. 
C)  $66,667. 
D)  $57,140. 
A)  $97,920. 
B)  $69,960. 
C)  $66,667. 
D)  $57,140.

Question 19

Alberto Company is considering the purchase of a new machine for $110,000. The machine generates annual revenues of $68,750 and annual expenses of $41,250, which includes $8,250 of depreciation. What is the payback period in years on the machine approximated to one decimal point?

Accepted Answer

A)  1.6 
B)  1.7 
C)  3.1 
D)  4.0 
A)  1.6 
B)  1.7 
C)  3.1 
D)  4.0

Question 20

A postaudit compares

Accepted Answer

A)  estimated benefits and costs with budgeted benefits and costs. 
B)  estimated benefits with estimated costs. 
C)  actual benefits with actual costs. 
D)  actual benefits and costs with estimated benefits and costs. 
A)  estimated benefits and costs with budgeted benefits and costs. 
B)  estimated benefits with estimated costs. 
C)  actual benefits with actual costs. 
D)  actual benefits and costs with estimated benefits and costs.

Which of the following is an example of an independent project?

Projects that if accepted or rejected do NOT affect the cash flows of projects are called:

The difference between the present value of future cash flows and the initial investment outlay is called the __________ value.

The present value of $4,000 to be received each year for three years and earning a 10 percent return (rounded) is

The payback period is the time required for a company to recover its initial investment.

A firm is considering a project with an annual cash flow of $200,000. The project would have a 7-year life, and the company uses a discount rate of 10 percent. Ignoring income taxes, what is the maximum amount the company could invest in the project and have the project still be acceptable?

A firm is evaluating a project that has a net present value of $0 when a discount rate of 9 percent is used. A discount rate of 7 percent will result in a

Discounting models for making capital decisions ignore the time value of money.

NPV differs from IRR:

Which of the following methods consider the time value of money?

Under the current tax law, an asset that is classified as 7-year property and has a cost of $400,000 would result in a depreciation deduction in Year 3 of

Alberto Company is considering the purchase of a new machine for $110,000. The machine generates annual revenues of $68,750 and annual expenses of $41,250, which includes $8,250 of depreciation. What is the payback period in years on the machine approximated to one decimal point?

A postaudit compares

Introduction to Cost Management

Basic Cost Management Concepts

Cost Behavior

Activity-Based Costing

Product and Service Costing: Job-Order System

Process Costing

Allocating Costs of Support Departments and Joint Products

Budgeting for Planning and Control

Standard Costing: a Functional-Based Control Approach

Decentralization: Responsibility, Accounting, Performance Evaluation, and Transfer Pricing

Strategic Cost Management

Activity-Based Management

The Balanced Scorecard: Strategic-Based Control

Quality and Environmental Cost Management

Lean Accounting and Productivity Measurement

Cost-Volume-Profit Analysis

Activity Resource Usage Model and Tactical Decision Making

Pricing and Profitability Analysis

Inventory Management: Economic Order Quantity, Jit, and the Theory of Constraints

Filters

Exam 19: Capital Investment

Which of the following is an example of an independent project?

Projects that if accepted or rejected do NOT affect the cash flows of projects are called:

The difference between the present value of future cash flows and the initial investment outlay is called the __________ value.

The present value of $4,000 to be received each year for three years and earning a 10 percent return (rounded) is

The payback period is the time required for a company to recover its initial investment.

A firm is considering a project with an annual cash flow of $200,000. The project would have a 7-year life, and the company uses a discount rate of 10 percent. Ignoring income taxes, what is the maximum amount the company could invest in the project and have the project still be acceptable?

A firm is evaluating a project that has a net present value of $0 when a discount rate of 9 percent is used. A discount rate of 7 percent will result in a

Discounting models for making capital decisions ignore the time value of money.

NPV differs from IRR:

Which of the following methods consider the time value of money?

Under the current tax law, an asset that is classified as 7-year property and has a cost of $400,000 would result in a depreciation deduction in Year 3 of

Alberto Company is considering the purchase of a new machine for $110,000. The machine generates annual revenues of $68,750 and annual expenses of $41,250, which includes $8,250 of depreciation. What is the payback period in years on the machine approximated to one decimal point?

A postaudit compares

Introduction to Cost Management

Basic Cost Management Concepts

Cost Behavior

Activity-Based Costing

Product and Service Costing: Job-Order System

Process Costing

Allocating Costs of Support Departments and Joint Products

Budgeting for Planning and Control

Standard Costing: a Functional-Based Control Approach

Decentralization: Responsibility, Accounting, Performance Evaluation, and Transfer Pricing

Strategic Cost Management

Activity-Based Management

The Balanced Scorecard: Strategic-Based Control

Quality and Environmental Cost Management

Lean Accounting and Productivity Measurement

Cost-Volume-Profit Analysis

Activity Resource Usage Model and Tactical Decision Making

Pricing and Profitability Analysis

Inventory Management: Economic Order Quantity, Jit, and the Theory of Constraints

Filters