Exam 9: Using Accounting Information to Make Managerial Decisions

Given a present value factor of 3.7907, assuming a 10% discount rate, the present value of an annuity of $20,000 payment each year for five years is

In which of the following decisions is a proposed project compared to a performance benchmark to determine whether the project should be considered further?

You wish to have $25,000 in five years.Using the tables, how much must you deposit today if you will earn 12% compounded annually on your investment?

The payback period measures

In making a capital budgeting decision, one needs to compare cash flows in terms of their amounts and when they occur.One way to do so is to determine their

Long-term decisions, including capital budgeting decisions, involve outflows of cash at one time or more and inflows of cash at other times.Managers must decide whether the inflows justify the outflows. Required: a.List three examples of cash inflows and three examples of cash outflows that might be involved in making a capital budgeting decision. b.Many capital budgeting decisions are made using present value calculations.What three factors does present value depend on?

To calculate the present value of an annuity, multiply the

ABC Company is considering the purchase of a new piece of equipment costing $138,875.The equipment has a 7-year useful life and is expected to generate $24,000 in annual cost savings.ABC has a 4% required rate of return. Required: a.What is the internal rate of return for the equipment, rounded to nearest factor? b.Should ABC purchase the new equipment? Why or Why not?

The actual return earned on a project is called the

The accounting rate of return is also known as the unadjusted rate of return.

Within the organization, which of the following groups reviews capital project requests?

In making a capital budgeting decision, one needs to compare cash flows in terms of

Which of the following pairs of items is inversely related?

Managers use capital budgeting techniques to make which of the following two types of capital budgeting decisions?

Compounding interest more frequently than annually causes a change in

Logan, Inc.is considering the purchase of a warehouse directly across the street from its manufacturing plant.Logan currently warehouses its inventory in a public warehouse across town.Rent on the warehouse and delivering and picking up inventory cost Logan $48,000 per year.The building will cost Logan $450,000.Logan will depreciate the building for 20 years.At the end of 20 years, the building will have a $125,000 salvage value.Logan's required rate of return is 10%.Using the interest tables, the building's net present value is

Dina Jones just learned that she received an inheritance from her grandmother.The inheritance provides for Dina to receive $5,000 per year at the end of the year for each of the next 5 years.Assuming a discount rate of 10%, what is the value of this inheritance to Dina today?

The process of determining how much an amount of money to be received in the future is worth today is called future value.

Once you have determined the net present value of a project, if the net present value is less than zero, the project should be

When the annual cash flows are uneven, you must use the annuity table method to calculate the internal rate of return.