Question 1

What is the average annual accounting rate of return based on the average book value of the investment?

Accepted Answer

A)  40% 
B)  60% 
C)  100% 
D)  120% 
A)  40% 
B)  60% 
C)  100% 
D)  120% A

Question 2

Which of the following will increase future value relative to present value?

Accepted Answer

A)  A higher interest rate 
B)  A shorter period 
C)  More safety 
D)  Less risk 
A)  A higher interest rate 
B)  A shorter period 
C)  More safety 
D)  Less risk A

Question 3

The ____ value of an amount is the value of that amount on a particular date prior to the time the amount is paid or received.

Accepted Answer

A)  present 
B)  current 
C)  contemporary 
D)  coetaneous 
A)  present 
B)  current 
C)  contemporary 
D)  coetaneous A

Question 4

You have an opportunity to purchase the Kuppajo Cafe, a busy shop near your office. The owner is asking $49 000. After satisfying yourself as to the accuracy of the firm's past financial statements, you note that it generated $12 000 per year in net cash flow. You believe you could operate the business for four years and sell it for $30 000. What is the maximum amount you would be willing to pay for the business if you wished to earn at least a 10% return on your investment?

Accepted Answer

A)  $33 467 
B)  $58 528 
C)  $68 690 
D)  $95 096 
A)  $33 467 
B)  $58 528 
C)  $68 690 
D)  $95 096

Question 5

Phil's Fish Shack Ltd wants to purchase machinery costing $20 000. The machinery is expected to have a life of two years and a zero residual value at the end of that time. The company uses a discount rate of 10%. The net cash inflows for each year are forecast to be: Year 1 $12 000
Year 2 $16 000
  What is the approximate net present value of the investment to the nearest whole dollar?

Accepted Answer

A)  $4131 
B)  $5452 
C)  $8000 
D)  $20 000 
A)  $4131 
B)  $5452 
C)  $8000 
D)  $20 000

Question 6

In which of the following situations would it not be useful to apply the concepts and techniques used in capital investment decisions?

Accepted Answer

A)  A company is considering the purchase of a new machine that would reduce the cost of direct labour in the production process. 
B)  A company is comparing the profitability and capital investments of two district offices to determine which one has the best current return on investment. 
C)  A company is reviewing the past performance of two investment projects to determine which project had the best five-year return on the investment made. 
D)  A company is evaluating the potential investment in research and development expenses to develop a new product line. 
A)  A company is considering the purchase of a new machine that would reduce the cost of direct labour in the production process. 
B)  A company is comparing the profitability and capital investments of two district offices to determine which one has the best current return on investment. 
C)  A company is reviewing the past performance of two investment projects to determine which project had the best five-year return on the investment made. 
D)  A company is evaluating the potential investment in research and development expenses to develop a new product line.

Question 7

Using the tables provided, calculate the net present value (NPV) of each of the following projects and select the best answer from the choices given. The applicable discount rate is 11%.   Present value of $1 to be received after N periods:
  NPV
Project A
NPV
Project B

Accepted Answer

A)  $24 820
$93 072 
B)  ($180)
$93 072 
C)  ($180)
$13 072 
D)  $24 820
$13 072 
A)  $24 820
$93 072 
B)  ($180)
$93 072 
C)  ($180)
$13 072 
D)  $24 820
$13 072

Question 8

An annuity is a series of:

Accepted Answer

A)  equal amounts paid or received over a specified number of unequal time periods. 
B)  unequal amounts paid or received over a specified number of equal time periods. 
C)  equal amounts paid or received over an unspecified number of equal time periods. 
D)  equal amounts paid or received over a specified number of equal time periods. 
A)  equal amounts paid or received over a specified number of unequal time periods. 
B)  unequal amounts paid or received over a specified number of equal time periods. 
C)  equal amounts paid or received over an unspecified number of equal time periods. 
D)  equal amounts paid or received over a specified number of equal time periods.

Question 9

The ____ value of an amount is the value of that amount at a later date.

Accepted Answer

A)  Present 
B)  Fair 
C)  Future 
D)  Prospective 
A)  Present 
B)  Fair 
C)  Future 
D)  Prospective

Question 10

Using the tables provided, calculate or estimate the internal rates of return (IRR) that are the closest to those listed for the two projects.   Present value of $1 to be received after N periods:
  IRR IRR
Project A Project B

Accepted Answer

A)  10.0% 11.5% 
B)  11.5% 12.0% 
C)  10.0% 12.0% 
D)  11.0% 13.5% 
A)  10.0% 11.5% 
B)  11.5% 12.0% 
C)  10.0% 12.0% 
D)  11.0% 13.5%

Question 11

Based on the following information, what is the payback period for the two investment projects? Select the best combination.

Accepted Answer

A)  6.4 years 5.6 years 
B)  5.4 years 4.6 years 
C)  6.5 years 5.5 years 
D)  5.4 years 5.6 years 
A)  6.4 years 5.6 years 
B)  5.4 years 4.6 years 
C)  6.5 years 5.5 years 
D)  5.4 years 5.6 years

Question 12

A problem with calculating the internal rate of return is that it relies on the estimation of future cash flows, which can be inaccurate, thus making the IRR less reliable.

Accepted Answer

A) True 
 B)False

Question 13

What is the internal rate of return for a project that has an initial outlay of $65 000 and expected cash inflows of $9456 per year for eight years?

Accepted Answer

A)  3% 
B)  3.5% 
C)  4% 
D)  6.8% 
A)  3% 
B)  3.5% 
C)  4% 
D)  6.8%

Question 14

Which of the following statements is true concerning the present value of an investment?

Accepted Answer

A)  The difference between the future and present values of an investment is the annuity. 
B)  The present value of an investment is expected to be larger than its future value. 
C)  The present value of an investment is expected to be smaller than its future value. 
D)  The present value of an investment is always larger than its future value. 
A)  The difference between the future and present values of an investment is the annuity. 
B)  The present value of an investment is expected to be larger than its future value. 
C)  The present value of an investment is expected to be smaller than its future value. 
D)  The present value of an investment is always larger than its future value.

Question 15

The accounting rate of return (ARR) is a traditional method of project evaluation, which involves dividing either the average net profit by the average book value of the investment, or the average net profit by the total initial investment value.

Accepted Answer

A) True 
 B)False

Question 16

An alternative approach to using the algebraic equation for calculating the internal rate of return is to use trial and error.

Accepted Answer

A) True 
 B)False

Question 17

Capital investment decisions include mutually exclusive projects where the acceptance of one project results in the rejection of another project or projects.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements is true concerning the future value of an investment?

Accepted Answer

A)  The difference between the future and present values of an investment is the annuity. 
B)  The future value of an investment is expected to be larger than its present value. 
C)  The future value of an investment is expected to be smaller than its present value. 
D)  The future value of an investment is always smaller than its present value. 
A)  The difference between the future and present values of an investment is the annuity. 
B)  The future value of an investment is expected to be larger than its present value. 
C)  The future value of an investment is expected to be smaller than its present value. 
D)  The future value of an investment is always smaller than its present value.

Question 19

Ridge NL is considering investing in a new project. Given the following information, which project would Ridge choose if a maximum payback period of 5.8 years is set?

Accepted Answer

A)  Project B, as the payback period is less than 5.8 years. 
B)  Both projects, as the payback periods are less than 5.8 years. 
C)  Project A, as the payback period is less than 5.8 years. 
D)  Neither project, as both payback periods exceed 5.8 years. 
A)  Project B, as the payback period is less than 5.8 years. 
B)  Both projects, as the payback periods are less than 5.8 years. 
C)  Project A, as the payback period is less than 5.8 years. 
D)  Neither project, as both payback periods exceed 5.8 years.

Question 20

If you placed $1000 in a savings account today, how much would you have one year from now if the bank paid 8% interest?

Accepted Answer

A)  $1800 
B)  $1080 
C)  $1008 
D)  $1000 
A)  $1800 
B)  $1080 
C)  $1008 
D)  $1000

What is the average annual accounting rate of return based on the average book value of the investment?

Which of the following will increase future value relative to present value?

The ____ value of an amount is the value of that amount on a particular date prior to the time the amount is paid or received.

In which of the following situations would it not be useful to apply the concepts and techniques used in capital investment decisions?

Using the tables provided, calculate the net present value (NPV) of each of the following projects and select the best answer from the choices given. The applicable discount rate is 11%. Present value of $1 to be received after N periods: NPV Project A NPV Project B

An annuity is a series of:

The ____ value of an amount is the value of that amount at a later date.

Using the tables provided, calculate or estimate the internal rates of return (IRR) that are the closest to those listed for the two projects. Present value of $1 to be received after N periods: IRR IRR Project A Project B

Based on the following information, what is the payback period for the two investment projects? Select the best combination.

A problem with calculating the internal rate of return is that it relies on the estimation of future cash flows, which can be inaccurate, thus making the IRR less reliable.

What is the internal rate of return for a project that has an initial outlay of $65 000 and expected cash inflows of $9456 per year for eight years?

Which of the following statements is true concerning the present value of an investment?

The accounting rate of return (ARR) is a traditional method of project evaluation, which involves dividing either the average net profit by the average book value of the investment, or the average net profit by the total initial investment value.

An alternative approach to using the algebraic equation for calculating the internal rate of return is to use trial and error.

Capital investment decisions include mutually exclusive projects where the acceptance of one project results in the rejection of another project or projects.

Which of the following statements is true concerning the future value of an investment?

Ridge NL is considering investing in a new project. Given the following information, which project would Ridge choose if a maximum payback period of 5.8 years is set?

If you placed $1000 in a savings account today, how much would you have one year from now if the bank paid 8% interest?

Introduction to Accounting

Types of Organisations and the Financial Reporting Framework

Ethics and Corporate Governance

Wealth and the Measurement of Profit

Presentation of Financial Position and the Worksheet

Presentation of Financial Performance and the Worksheet

Presentation of Cash Flows

Accounting for Selected Assets

Liabilities and Sources of Financing

Financial Statement Analysis

Worksheet to Debits and Credits

An Introduction to Management Accounting: a Strategic Perspective

Performance Measurement and the Balanced Scorecard

Costs and Cost Behaviour

Budgets

Cost-Volume-Profit Analysis

Accounting for Decision Making: With and Without Resource Constraints

Filters

Exam 18: Capital Investment Decisions

What is the average annual accounting rate of return based on the average book value of the investment?

Which of the following will increase future value relative to present value?

The ____ value of an amount is the value of that amount on a particular date prior to the time the amount is paid or received.

In which of the following situations would it not be useful to apply the concepts and techniques used in capital investment decisions?

Using the tables provided, calculate the net present value (NPV) of each of the following projects and select the best answer from the choices given. The applicable discount rate is 11%. Present value of $1 to be received after N periods: NPV Project A NPV Project B

An annuity is a series of:

The ____ value of an amount is the value of that amount at a later date.

Using the tables provided, calculate or estimate the internal rates of return (IRR) that are the closest to those listed for the two projects. Present value of $1 to be received after N periods: IRR IRR Project A Project B

Based on the following information, what is the payback period for the two investment projects? Select the best combination.

A problem with calculating the internal rate of return is that it relies on the estimation of future cash flows, which can be inaccurate, thus making the IRR less reliable.

What is the internal rate of return for a project that has an initial outlay of $65 000 and expected cash inflows of $9456 per year for eight years?

Which of the following statements is true concerning the present value of an investment?

The accounting rate of return (ARR) is a traditional method of project evaluation, which involves dividing either the average net profit by the average book value of the investment, or the average net profit by the total initial investment value.

An alternative approach to using the algebraic equation for calculating the internal rate of return is to use trial and error.

Capital investment decisions include mutually exclusive projects where the acceptance of one project results in the rejection of another project or projects.

Which of the following statements is true concerning the future value of an investment?

Ridge NL is considering investing in a new project. Given the following information, which project would Ridge choose if a maximum payback period of 5.8 years is set?

If you placed $1000 in a savings account today, how much would you have one year from now if the bank paid 8% interest?

Introduction to Accounting

Types of Organisations and the Financial Reporting Framework

Ethics and Corporate Governance

Wealth and the Measurement of Profit

Presentation of Financial Position and the Worksheet

Presentation of Financial Performance and the Worksheet

Presentation of Cash Flows

Accounting for Selected Assets

Liabilities and Sources of Financing

Financial Statement Analysis

Worksheet to Debits and Credits

An Introduction to Management Accounting: a Strategic Perspective

Performance Measurement and the Balanced Scorecard

Costs and Cost Behaviour

Budgets

Cost-Volume-Profit Analysis

Accounting for Decision Making: With and Without Resource Constraints

Filters