Question 1

In this chapter,you examined several short-term managerial decision tasks.Identify (list)any three of these types of decision tasks:
_________________________; _________________________; _________________________

Accepted Answer

The answer of In this chapter,you examined several short-term managerial...

Question 2

In business decision-making,managers typically examine the two fundamental factors of:

Accepted Answer

A) Risk and capital investment. 
B) Risk and rate of return. 
C) Capital investment and rate of return. 
D) Risk and payback. 
E) Payback and rate of return.

Question 3

Edgar Company is considering the purchase of new equipment costing $80,000.The projected net cash flows are $35,000 for the first two years and $30,000 for years three and four.The revenue is to be received at the end of each year.The machine has a useful life of 4 years and no salvage value.Edgar requires a 10% return on its investments.The present value of an annuity of 1 and present value of an annuity for different periods is presented below.Compute the net present value of the machine. $$\begin{array} { c c c } 
& \text { Present Value } & \text { Present Value of ar } \
\text { Periods } & \text { of } 1 \text { at } 10 \% & \text { Arruity of } 1 \text { at } 10 \% \
1 \ldots \ldots \ldots \ldots \ldots . & 0.9091 & 0.9091 \
2 \ldots \ldots \ldots \ldots \ldots . & 0.8264 & 1.7355 \
3 \ldots \ldots \ldots \ldots \ldots . & 0.7513 & 2.4869 \
4\ldots \ldots \ldots \ldots \ldots & 0.6830 & 3.1699
\end{array}$$

Accepted Answer

A) $(15,731). 
B) $(4,896). 
C) $15,731. 
D) $4,896. 
E) $23,775.

Question 4

Coffer Co.is analyzing two projects for the future.Assume that only one project can be selected. $$\begin{array} { c r r } 
& \frac { \text { Project X } } { } & \frac { \text { Project Y } } { } \
\text { Cost of machine } & \$ 68,000 & \$ 60,000 \
\text { Net cash flow: } & & \
\text { Year 1 } & 24,000 & 4,000 \
\text { Year 2 } & 24,000 & 26,000 \
\text { Year 3 } & 24,000 & 26,000 \
\text { Year 4 } & 0 & 20,000
\end{array}$$ If the company is using the payback period method and it requires a payback of three years or less,which project should be selected?

Accepted Answer

A) Project Y. 
B) Project X. 
C) Both X and Y are acceptable projects. 
D) Neither X nor Y is an acceptable project. 
E) Project Y because it has a lower initial investment.

Question 5

The payback method,unlike the net present value method,does not ignore cash flows after the point of cost recovery.

Accepted Answer

A) True 
 B)False

Question 6

Daniels Corporation is considering the purchase of new equipment costing $30,000.The projected annual after-tax net income from the equipment is $1,200,after deducting $10,000 for depreciation.The revenue is to be received at the end of each year.The machine has a useful life of 3 years and no salvage value.Daniels requires a 12% return on its investments.The present value of an annuity of 1 for different periods follows:
$$\begin{array} { l r } 
\text { Periods } & \text { l2 Percent } \
\hline 1 \ldots \ldots \ldots \ldots & 0.8929 \
2 \ldots \ldots \ldots & 1.6901 \
3 \ldots \ldots \ldots & 2.4018 \
4 \ldots \ldots \ldots& 3.0373
\end{array}$$ What is the net present value of the machine?

Accepted Answer

A) $24,018. 
B) $(3,100). 
C) $30,000. 
D) $26,900. 
E) $(29,520).

Question 7

What is capital budgeting?
 Why are capital budgeting decisions often difficult and risky?

Accepted Answer

The answer of What is capital budgeting?
 Why are capital...

Question 8

The time expected to pass before the net cash flows from an investment would return its initial cost is called the:

Accepted Answer

A) Amortization period. 
B) Payback period. 
C) Interest period. 
D) Budgeting period. 
E) Discounted cash flow period.

Question 9

An estimate of an asset's value to the company,calculated by discounting the future cash flows from the investment at an appropriate rate and then subtracting the initial cost of the investment,is known as:

Accepted Answer

A) Annual net cash flows. 
B) Rate of return on investment. 
C) Net present value. 
D) Payback period. 
E) Unamortized carrying value.

Question 10

Another name for relevant cost is unavoidable cost.

Accepted Answer

A) True 
 B)False

Question 11

The calculation of annual net cash flow from a particular investment project should include all of the following except:

Accepted Answer

A) Income taxes. 
B) Revenues generated by the investment. 
C) Cost of products generated by the investment. 
D) Depreciation expense. 
E) General and administrative expenses.

Question 12

Edgar Company is considering the purchase of new equipment costing $80,000.The projected annual after-tax net income from the equipment is $10,200,after deducting $20,000 for depreciation.The revenue is to be received at the end of each year.The machine has a useful life of 4 years and no salvage value.Edgar requires a 10% return on its investments.The present value of an annuity of 1 and present value of an annuity for different periods is presented below.Compute the net present value of the machine. $$\begin{array} { c c c } 
& \text { Present Value } & \text { Present Value of ar } \
\text { Periods } & \text { of } 1 \text { at } 10 \% & \text { Arruity of } 1 \text { at } 10 \% \
1 \ldots \ldots \ldots \ldots \ldots . & 0.9091 & 0.9091 \
2 \ldots \ldots \ldots \ldots \ldots . & 0.8264 & 1.7355 \
3 \ldots \ldots \ldots \ldots \ldots . & 0.7513 & 2.4869 \
4 \ldots \ldots \ldots \ldots \ldots & 0.6830 & 3.1699
\end{array}$$

Accepted Answer

A) $(15,731). 
B) $(4,896). 
C) $15,731. 
D) $4,896. 
E) $32,334.

Question 13

If the straight-line depreciation method is used,the annual average investment amount used in calculating rate of return is calculated as (beginning book value + ending book value)/2.

Accepted Answer

A) True 
 B)False

Question 14

Relevant costs are also known as ___________________.

Accepted Answer

The answer of Relevant costs are also known as ___________________....

Question 15

A new manufacturing machine is expected to cost $286,000,have an eight-year life,and a $30,000 salvage value.The machine will yield an annual incremental after-tax income of $35,000 after deducting the straight-line depreciation.Compute the payback period for the purchase.

Accepted Answer

A) 8.7 years. 
B) 3.8 years. 
C) 4.3 years. 
D) 7.3 years. 
E) 5.4 years.

Question 16

A company is considering the purchase of new equipment for $45,000.The projected after-tax net income is $3,000 after deducting $15,000 of depreciation.The machine has a useful life of 3 years and no salvage value.Management of the company requires a 12% return on investment.The present value of an annuity of 1 for various periods follows:
 $$\begin{array} { c c } 
\text { Period } & \text { Present value of and annuity of } 1 \text { at } 12 \% \
1 \ldots \ldots & 0.8929 \
2 \ldots \ldots & 1.6901 \
3 \ldots \ldots &2.4018
\end{array}$$ What is the net present value of this machine assuming all cash flows occur at year-end?

Accepted Answer

The answer of A company is considering the purchase of...

Question 17

A cost that requires a current and/or future outlay of cash,and is usually an incremental cost,is a(n):

Accepted Answer

A) Out-of-pocket cost. 
B) Sunk cost. 
C) Opportunity cost. 
D) Operating cost. 
E) Uncontrollable cost.

Question 18

_____________________ is the process of analyzing alternative long-term investments and deciding which assets to acquire or sell.

Accepted Answer

The answer of _____________________ is the process of analyzing alternative...

Question 19

Identify at least three reasons for managers to favor the internal rate of return (IRR)over other capital budgeting approaches.

Accepted Answer

The answer of Identify at least three reasons for managers...

Question 20

Capital budgeting decisions usually involve analysis of:

Accepted Answer

A) Cash outflows only. 
B) Short-term investments. 
C) Long-term investments. 
D) Investments with certain outcomes only. 
E) Operating revenues.

Exam 25: Capital Budgeting and Managerial Decisions

In this chapter,you examined several short-term managerial decision tasks.Identify (list)any three of these types of decision tasks: _____________; _; _____________

In business decision-making,managers typically examine the two fundamental factors of:

The payback method,unlike the net present value method,does not ignore cash flows after the point of cost recovery.

What is capital budgeting? Why are capital budgeting decisions often difficult and risky?

The time expected to pass before the net cash flows from an investment would return its initial cost is called the:

An estimate of an asset's value to the company,calculated by discounting the future cash flows from the investment at an appropriate rate and then subtracting the initial cost of the investment,is known as:

Another name for relevant cost is unavoidable cost.

The calculation of annual net cash flow from a particular investment project should include all of the following except:

If the straight-line depreciation method is used,the annual average investment amount used in calculating rate of return is calculated as (beginning book value + ending book value)/2.

Relevant costs are also known as ___________________.

A new manufacturing machine is expected to cost $286,000,have an eight-year life,and a $30,000 salvage value.The machine will yield an annual incremental after-tax income of $35,000 after deducting the straight-line depreciation.Compute the payback period for the purchase.

A cost that requires a current and/or future outlay of cash,and is usually an incremental cost,is a(n) :

_____________________ is the process of analyzing alternative long-term investments and deciding which assets to acquire or sell.

Identify at least three reasons for managers to favor the internal rate of return (IRR)over other capital budgeting approaches.

Capital budgeting decisions usually involve analysis of:

Exam 25: Capital Budgeting and Managerial Decisions

In this chapter,you examined several short-term managerial decision tasks.Identify (list)any three of these types of decision tasks: _________________________; _________________________; _________________________

In business decision-making,managers typically examine the two fundamental factors of:

The payback method,unlike the net present value method,does not ignore cash flows after the point of cost recovery.

What is capital budgeting? Why are capital budgeting decisions often difficult and risky?

The time expected to pass before the net cash flows from an investment would return its initial cost is called the:

An estimate of an asset's value to the company,calculated by discounting the future cash flows from the investment at an appropriate rate and then subtracting the initial cost of the investment,is known as:

Another name for relevant cost is unavoidable cost.

The calculation of annual net cash flow from a particular investment project should include all of the following except:

If the straight-line depreciation method is used,the annual average investment amount used in calculating rate of return is calculated as (beginning book value + ending book value)/2.

Relevant costs are also known as ___________________.

A new manufacturing machine is expected to cost $286,000,have an eight-year life,and a $30,000 salvage value.The machine will yield an annual incremental after-tax income of $35,000 after deducting the straight-line depreciation.Compute the payback period for the purchase.

A cost that requires a current and/or future outlay of cash,and is usually an incremental cost,is a(n) :

_____________________ is the process of analyzing alternative long-term investments and deciding which assets to acquire or sell.

Identify at least three reasons for managers to favor the internal rate of return (IRR)over other capital budgeting approaches.

Capital budgeting decisions usually involve analysis of:

In this chapter,you examined several short-term managerial decision tasks.Identify (list)any three of these types of decision tasks: _____________; _; _____________