Question 1

An investment should be accepted if ________.

Accepted Answer

A) it has positive total cash inflows 
B) it has a payback period in less than 10 years 
C) the investment's rate of return is lower than the company's current year required rate of return 
D) the net present value is positive

Question 2

If net cash inflows are unequal,how is the payback period (in years)of an investment is calculated?

Accepted Answer

The answer of If net cash inflows are unequal,how is...

Question 3

What are the strengths of the net present value capital budgeting method?

Accepted Answer

The answer of What are the strengths of the net...

Question 4

The following information is provided by Dinovo Systems:
  
Calculate the profitability index for Project B.Show your calculations and round to two decimal places.

Accepted Answer

The answer of The following information is provided by Dinovo...

Question 5

The accounting rate of return method considers the time value of money.

Accepted Answer

A) True 
 B)False

Question 6

The only difference between the present value and future value of a lump sum is the amount of interest that is earned in the intervening time span.

Accepted Answer

A) True 
 B)False

Question 7

You have just won the lottery and have three payout options:
1.$1,000,000 now
2.$150,000 at the end of each year for the next ten years
3.$2,000,000 at the end of ten years.
What is a common basis for comparison that you can use to decide which option to choose? Explain your answer.

Accepted Answer

The answer of You have just won the lottery and...

Question 8

Which of the following best describes the internal rate of return?

Accepted Answer

A) interest rate that makes the net present value of the investment equal to zero 
B) discount rate that is used to evaluate funds borrowed from a lender for profitability 
C) the ratio of average annual income to average amount invested 
D) the rate at which the profitability of an investment increases

Question 9

Newman Automobiles Manufacturing is considering two alternative investment proposals with the following data:

Calculate the payback period for Proposal X.

Accepted Answer

A) 5 years 
B) 4 years 
C) 9 years 
D) 10 years

Question 10

Which of the following is the rate of return,based on discounted cash flows,a company can expect to earn by investing in a capital asset?

Accepted Answer

A) accounting rate of return 
B) bank interest rate 
C) internal rate of return 
D) return on investment

Question 11

The discounted cash flow methods of evaluating capital investments are superior because they consider both the time value of money and the profitability of the investment.

Accepted Answer

A) True 
 B)False

Question 12

All else being equal,the shorter the investment period,the higher the total amount of interest earned.

Accepted Answer

A) True 
 B)False

Question 13

Elsie Moving Company is considering purchasing new equipment that costs $724,000.Its management estimates that the equipment will generate cash flows as follows:

The company's required rate of return is 10%.Using the factors in the table below,calculate the present value of the cash inflows.(Round all calculations to the nearest whole dollar. )
Present value of $1:

Accepted Answer

A) $791,229 
B) $795,284 
C) $838,778 
D) $806,742

Question 14

At the internal rate of return,the present value of net cash inflows will equal the ________.

Accepted Answer

A) initial cost of the investment 
B) residual value 
C) average operating income 
D) profit from the project

Question 15

Joanne,Inc.is evaluating two possible investments in depreciable plant assets.The company uses the straight-line method of depreciation.The following information is available:

Calculate the payback period for Investment B.(Round your answer to two decimal places. )

Accepted Answer

A) 3.33 years 
B) 1.83 years 
C) 3.81 years 
D) 5.24 years

Question 16

An operational asset used for a long period of time is known as a capital asset.

Accepted Answer

A) True 
 B)False

Question 17

Logan,Inc.is evaluating two possible investments in depreciable plant assets.The company uses the straight-line method of depreciation.The following information is available:

Calculate the payback period for Investment A.(Round your answer to two decimal places. )

Accepted Answer

A) 3.04 years 
B) 3.95 years 
C) 1.00 year 
D) 5.10 years

Question 18

Zane Set Designs Company has received an award which entitles it to receive annual payments of $10,000 at the end of each year for the next ten years.Which of the following is used to calculate today's value of this award?

Accepted Answer

A) Present Value of $1 
B) Present Value of an Ordinary Annuity of $1 
C) Future Value of $1 
D) Future Value of an Ordinary Annuity of $1

Question 19

A company is evaluating three possible investments.Each uses the straight-line method of depreciation.Following information is provided by the company:

What is the accounting rate of return for Project B? (Round your answer to two decimal places. )

Accepted Answer

A) 20.84% 
B) 9.82% 
C) 12.90% 
D) 12.22%

Question 20

Under conditions of limited resources,when a company is comparing several investments with different amounts of initial cost,the decision should be made on the basis of the ________.

Accepted Answer

A) highest total cash inflows 
B) shortest payback period 
C) highest profitability index 
D) highest NPV

Exam 26: Capital Investment Decisions

An investment should be accepted if ________.

If net cash inflows are unequal,how is the payback period (in years)of an investment is calculated?

What are the strengths of the net present value capital budgeting method?

The following information is provided by Dinovo Systems: Calculate the profitability index for Project B.Show your calculations and round to two decimal places.

The accounting rate of return method considers the time value of money.

The only difference between the present value and future value of a lump sum is the amount of interest that is earned in the intervening time span.

You have just won the lottery and have three payout options: 1.$1,000,000 now 2.$150,000 at the end of each year for the next ten years 3.$2,000,000 at the end of ten years. What is a common basis for comparison that you can use to decide which option to choose? Explain your answer.

Which of the following best describes the internal rate of return?

Newman Automobiles Manufacturing is considering two alternative investment proposals with the following data: Calculate the payback period for Proposal X.

Which of the following is the rate of return,based on discounted cash flows,a company can expect to earn by investing in a capital asset?

The discounted cash flow methods of evaluating capital investments are superior because they consider both the time value of money and the profitability of the investment.

All else being equal,the shorter the investment period,the higher the total amount of interest earned.

At the internal rate of return,the present value of net cash inflows will equal the ________.

Joanne,Inc.is evaluating two possible investments in depreciable plant assets.The company uses the straight-line method of depreciation.The following information is available: Calculate the payback period for Investment B.(Round your answer to two decimal places. )

An operational asset used for a long period of time is known as a capital asset.

Logan,Inc.is evaluating two possible investments in depreciable plant assets.The company uses the straight-line method of depreciation.The following information is available: Calculate the payback period for Investment A.(Round your answer to two decimal places. )

Zane Set Designs Company has received an award which entitles it to receive annual payments of $10,000 at the end of each year for the next ten years.Which of the following is used to calculate today's value of this award?

A company is evaluating three possible investments.Each uses the straight-line method of depreciation.Following information is provided by the company: What is the accounting rate of return for Project B? (Round your answer to two decimal places. )

Under conditions of limited resources,when a company is comparing several investments with different amounts of initial cost,the decision should be made on the basis of the ________.