Question 1

Azimuth Company was considering the purchase of equipment. Details on the equipment are as follows:   What is the payback period in years, assuming no taxes are paid?

Accepted Answer

A)  4.33 
B)  4.00 
C)  5.00 
D)  3.85 
A)  4.33 
B)  4.00 
C)  5.00 
D)  3.85

Question 2

Which of the following capital investment models would be preferred when choosing among mutually exclusive alternatives?

Accepted Answer

A)  payback period 
B)  accounting rate of return 
C)  IRR 
D)  NPV 
A)  payback period 
B)  accounting rate of return 
C)  IRR 
D)  NPV

Question 3

A firm is considering a project requiring an investment of $200,000. The project would generate an annual cash flow of $55,478 for the next five years. The company uses the straight-line method of depreciation with no mid- year convention. Ignore income taxes. The approximate internal rate of return for the project is

Accepted Answer

A)  9%. 
B)  10%. 
C)  12%. 
D)  16%. 
A)  9%. 
B)  10%. 
C)  12%. 
D)  16%.

Question 4

Wastenot Production Company is considering the purchase of a flexible manufacturing system. The after-tax cash benefits/savings associated with the system are as follows:
   The system will cost $825,000 and will last ten years.
The company's cost of capital is 10 percent.
Required: 
a. What is the payback period for the flexible manufacturing system?
b. What is the NPV for the flexible manufacturing system?
c. What is the IRR for the flexible manufacturing system?

Accepted Answer

a. $825,000/$275,000 = 3 years
b. 6.145

Question 5

The accounting rate of return on original investment is calculated as

Accepted Answer

A)  original investment/net income. 
B)  net income/debt. 
C)  average income/original investment. 
D)  assets/debt. 
A)  original investment/net income. 
B)  net income/debt. 
C)  average income/original investment. 
D)  assets/debt.

Question 6

If the internal rate of return (IRR) is less than the cost of capital, then the investment is acceptable.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is NOT an example of information the payback period can provide to management?

Accepted Answer

A)  Minimize the impact of an investment on a firm's liquidity performance. 
B)  Help control the risks associated with the uncertainty of future cash flows. 
C)  Help control the risk of obsolescence. 
D)  Helps determine the project's total profitability. 
A)  Minimize the impact of an investment on a firm's liquidity performance. 
B)  Help control the risks associated with the uncertainty of future cash flows. 
C)  Help control the risk of obsolescence. 
D)  Helps determine the project's total profitability.

Question 8

Nondiscounting models for making capital investments explicitly consider the time value of money.

Accepted Answer

A) True 
 B)False

Question 9

Net present value (NPV) is the difference between the present value of cash inflows and outflows associated with a project.

Accepted Answer

A) True 
 B)False

Question 10

If the tax rate is 40 percent and a company has $800,000 of income, a depreciation deduction of $160,000 would result in a tax savings of

Accepted Answer

A)  $105,600. 
B)  $96,000. 
C)  $64,000. 
D)  $54,400. 
A)  $105,600. 
B)  $96,000. 
C)  $64,000. 
D)  $54,400.

Question 11

Anselmo Corp. is considering the purchase of a new machine for $76,000. The machine would generate an annual cash flow of $23,214 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 payback period in years for the machine approximated to two decimal points, assuming no taxes are paid?

Accepted Answer

A)  3.00 
B)  3.27 
C)  9.48 
D)  4.00 
A)  3.00 
B)  3.27 
C)  9.48 
D)  4.00

Question 12

Mutually exclusive projects are those which preclude the acceptance of all other competing projects.

Accepted Answer

A) True 
 B)False

Question 13

In today's markets, long­term investments in technology and pollution prevention can provide significant competitive
advantages.

Accepted Answer

A) True 
 B)False

Question 14

A firm is considering a project with an annual cash flow of $240,000. The project would have an 8-year life, and the company uses a discount rate of 12 percent. Ignoring income taxes, what is the maximum amount the company could invest in the project and have the project still be acceptable (rounded)?

Accepted Answer

A)  $977,480 
B)  $1,125,228 
C)  $1,160,582 
D)  $1,192,320 
A)  $977,480 
B)  $1,125,228 
C)  $1,160,582 
D)  $1,192,320

Question 15

the two ways to compute after-tax cash flows are the income method and the composition method.

Accepted Answer

A) True 
 B)False

Question 16

The internal rate of return is defined as

Accepted Answer

A)  a blend of the costs of capital from all sources. 
B)  the minimal acceptable interest rate on investments. 
C)  the difference between the present value of the cash inflows and outflows associated with a project. 
D)  the interest rate that sets the present value of a project's cash inflows equal to the present value of a project's cost. 
A)  a blend of the costs of capital from all sources. 
B)  the minimal acceptable interest rate on investments. 
C)  the difference between the present value of the cash inflows and outflows associated with a project. 
D)  the interest rate that sets the present value of a project's cash inflows equal to the present value of a project's cost.

Question 17

Davidson, Inc., is considering the purchase of production equipment that costs $300,000. The equipment is expected to generate an annual cash flow of $100,000 and have a useful life of five years with no salvage value. The firm's cost of capital is 14 percent. The company uses the straight-line method of depreciation with no mid-year convention. Ignore income taxes. Payback for the project is

Accepted Answer

A)  3.00 years. 
B)  3.50 years. 
C)  5.00 years. 
D)  2.38 years. 
A)  3.00 years. 
B)  3.50 years. 
C)  5.00 years. 
D)  2.38 years.

Question 18

A machine with a book value of $60,000 could be sold for $80,000. The corporation that owns the machine has taxable income of $670,000 and a 40 percent tax rate. What would be the tax on the sale of the machine?

Accepted Answer

A)  $-0- 
B)  $20,000 
C)  $12,000 
D)  $8,000 
A)  $-0- 
B)  $20,000 
C)  $12,000 
D)  $8,000

Question 19

Which of the following methods uses income instead of cash flows?

Accepted Answer

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

Question 20

Colorform Company is considering the purchase of the following computer equipment, which is considered 5-year property for tax purposes:   Colorform Company plans to use MACRS and keep the production equipment for seven years. (Round amounts to
Dollars.)
Tax savings from depreciation in Year 3 would be

Accepted Answer

A)  $54,400. 
B)  $30,720. 
C)  $22,856. 
D)  $35,360. 
A)  $54,400. 
B)  $30,720. 
C)  $22,856. 
D)  $35,360.

Azimuth Company was considering the purchase of equipment. Details on the equipment are as follows: What is the payback period in years, assuming no taxes are paid?

Which of the following capital investment models would be preferred when choosing among mutually exclusive alternatives?

The accounting rate of return on original investment is calculated as

If the internal rate of return (IRR) is less than the cost of capital, then the investment is acceptable.

Which of the following is NOT an example of information the payback period can provide to management?

Nondiscounting models for making capital investments explicitly consider the time value of money.

Net present value (NPV) is the difference between the present value of cash inflows and outflows associated with a project.

If the tax rate is 40 percent and a company has $800,000 of income, a depreciation deduction of $160,000 would result in a tax savings of

Mutually exclusive projects are those which preclude the acceptance of all other competing projects.

In today's markets, longterm investments in technology and pollution prevention can provide significant competitive advantages.

the two ways to compute after-tax cash flows are the income method and the composition method.

The internal rate of return is defined as

A machine with a book value of $60,000 could be sold for $80,000. The corporation that owns the machine has taxable income of $670,000 and a 40 percent tax rate. What would be the tax on the sale of the machine?

Which of the following methods uses income instead of cash flows?

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

Azimuth Company was considering the purchase of equipment. Details on the equipment are as follows: What is the payback period in years, assuming no taxes are paid?

Which of the following capital investment models would be preferred when choosing among mutually exclusive alternatives?

The accounting rate of return on original investment is calculated as

If the internal rate of return (IRR) is less than the cost of capital, then the investment is acceptable.

Which of the following is NOT an example of information the payback period can provide to management?

Nondiscounting models for making capital investments explicitly consider the time value of money.

Net present value (NPV) is the difference between the present value of cash inflows and outflows associated with a project.

If the tax rate is 40 percent and a company has $800,000 of income, a depreciation deduction of $160,000 would result in a tax savings of

Mutually exclusive projects are those which preclude the acceptance of all other competing projects.

In today's markets, long­term investments in technology and pollution prevention can provide significant competitive advantages.

the two ways to compute after-tax cash flows are the income method and the composition method.

The internal rate of return is defined as

A machine with a book value of $60,000 could be sold for $80,000. The corporation that owns the machine has taxable income of $670,000 and a 40 percent tax rate. What would be the tax on the sale of the machine?

Which of the following methods uses income instead of cash flows?

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

In today's markets, longterm investments in technology and pollution prevention can provide significant competitive advantages.