Exam 9: Using Accounting Information to Make Managerial Decisions

The payback period is most often used as which of the following tools?

The time it takes, in years, for an investment to return the original amount of invested capital is referred to as

Which of the following is not used in the calculation of the accounting rate of return?

Which of the following is a reason that organizations invest in capital assets?

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 $400,000.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

Two major weaknesses of the accounting rate of return are that it does not consider cash flows and it is the least accurate capital budgeting technique.

To determine the present value of any future amount, you need to know

When a project's internal rate of return equals the discount rate,

Which of the following items is not included in the decision to purchase a new capital asset to replace an old one?

The return generated by an investment based on its operating income is the

Betty's Bakery needs to purchase a new oven costing $8,000 to replace her old oven that cannot be repaired.The new oven has several new features and is expected to have a useful life of 12 years.Betty does not expect the oven will have any salvage value at the end of its life. Required: a.If Betty's required rate of return is 8%, what level of annual cash savings must the oven generate to be considered an acceptable investment under the net present value method? b.If Betty decides the cash savings will not be sufficient to justify the cost of the new oven, list two alternatives she might consider.

Capital assets are

Murphy's Manufacturing has provided the following information on a proposed project: Required: a.What is the payback period for the investment? b.What is the simple rate of return on the investment?

The following data pertain to an investment proposal: Using the tables, what is the present value of the proposed investment?

Discount rates are used to value which of the following items?

A capital asset is

Assume that on January 1, 2021 you purchased ten shares of XYZ Corporate stock for $22 each.On September 30, 2023, you sell one-half of your stock for $28 per share.What is your return on your investment?

Which of the following is an advantage of the accounting rate of return?

Marilyn's parents have agreed to help her purchase a new car upon graduation in four years.They have given her two choices.The first choice is that they will give her $4,000 each year for the next four years for her to invest herself.The second choice is that they will wait four years and give her $18,000.Marilyn can invest the money at a 4% rate. Required: a.Which option should Marilyn choose? Why? b.If Marilyn can invest the money at 8%, which options should she choose? Why?

The payback period and the accounting rate of return are two methods of evaluating capital budgeting decisions.Like other approaches, these two methods have advantages and disadvantages. Required: a.What is an advantage of these two methods? b.List two disadvantages of the payback period and explain how to calculate the payback period. c.List two advantages and two disadvantages of the accounting rate of return and explain how to calculate the return.