Exam 21: Capital Budgeting and Cost Analysis

Comparison of the actual results for a project to the costs and benefits expected at the time the project was selected is referred to as ________.

Which of the following is an advantage of internal rate of return method?

As a discounted cash flow method does not report good operating income results in the project's early years,managers are tempted to not use discounted cash flow methods even though the decisions based on them would be in the best interests of the company as a whole over the long run.

If there are non-uniform cash flows (cash flows that differ from year-to-year),payback period is calculated by dividing net initial investment by uniform increase in annual future cash flows.

The Venoid Corporation has an annual cash inflow from operations from its investment in a capital asset of $23,000 (excluding depreciation)each year for five years.The corporation's income tax rate is 30%.Calculate the total after-tax cash inflow from operations for five years.

Net present value is calculated using which of the following?

The real approach to incorporating inflation into the net present value method predicts ________.

Unlike the net present value method and the internal rate-of-return method,the payback method does NOT distinguish between the origins of the cash flows.

The AARR method is similar to the IRR method as ________.

Post-investment audits prevent managers from overstating the expected cash inflows from projects and accepting projects they should reject.

Retail Outlet is looking for a new location near a shopping mall.It is considering purchasing a building rather than leasing,as it has done in the past.Three retail buildings near a new mall are available but each has its own advantages and disadvantages.The owner of the company has completed an analysis of each location that includes considerations for the time value of money.The information is as follows: The owner does not understand how the location with the highest percentage return has the lowest net present value. Required: Explain to the owner what is (are)the probable cause(s)of the comparable differences.

Capital budgeting is the process of making long-run planning decisions for investments in projects.

What is the difference between nominal approach and real approach to incorporating inflation into the net present value method?

Midize Flower Company provides flowers and other nursery products for decorative purposes in medium to large sized restaurants and businesses.The company has been investigating the purchase of a new specially equipped van for deliveries.The van will cost $61,392 with a eight-year life.The expected additional cash inflows are $16,000 per year.What is the internal rate of return?

Which of the following statements is true of accrual accounting rate of return (AARR)method and internal rate of return (IRR)method?

Discuss a range of factors that managers may have to consider when making capital budgeting decisions that are strategic in nature.

A company financial analyst estimates that a project that will cost $150,000 will return the following cash flows: Year 1 $45,000 Year 2 $55,000 Year 3 $60,000 year 4 $85,000 Year 5 $90,000 Calculate the discounted payback period if required rate of return is 10%

The income taxes saved as a result of depreciation deductions are irrelevant because they decrease cash outflows.

In situations where the required rate of return is not constant for each year of the project,it is advantageous to use ________.

Net initial investment in the project includes the acquisition of assets and any associated additions to working capital,minus the after-tax cash flow from the disposal of existing assets.