Question 1

Which of the following projects is rejected on the basis of net present value method?

Accepted Answer

A) Project A with an NPV of $10,000 
B) Project B with an NPV of $(15,000) 
C) Project C with an NPV of $21,000 
D) Project D with an NPV of $1200 
A) Project A with an NPV of $10,000 
B) Project B with an NPV of $(15,000) 
C) Project C with an NPV of $21,000 
D) Project D with an NPV of $1200

Question 2

The Ambitz Corporation has an annual cash inflow from operations from its investment in a capital asset of $44,000 (excluding the deprecation)each year for seven years.The corporation's income tax rate is 35%.Calculate the total after-tax cash inflow from operations for seven years.

Accepted Answer

A) $308,000 
B) $308,002 
C) $200,200 
D) $44,000 
A) $308,000 
B) $308,002 
C) $200,200 
D) $44,000

Question 3

Which of the following is a stage of the capital budgeting process that forecasts all potential cash flows attributable to the alternative projects?

Accepted Answer

A) identify projects stage 
B) make decisions by choosing among alternatives stage 
C) implement the decision,evaluate performance,and learn stage 
D) make predictions stage 
A) identify projects stage 
B) make decisions by choosing among alternatives stage 
C) implement the decision,evaluate performance,and learn stage 
D) make predictions stage

Question 4

Discounted cash flow methods do not consider the present value of the cash flows after the recovery of the initial investment.

Accepted Answer

A) True 
 B)False

Question 5

The focus in capital budgeting should be on ________.

Accepted Answer

A) favorable and unfavorable variance 
B) expenses under accrual accounting 
C) expected future cash flows that differ between alternatives 
D) allocation of overheads 
A) favorable and unfavorable variance 
B) expenses under accrual accounting 
C) expected future cash flows that differ between alternatives 
D) allocation of overheads

Question 6

In calculating the net initial investment cash flows,any increase in working capital required for the project should be included.

Accepted Answer

A) True 
 B)False

Question 7

Depreciation is usually NOT considered an operating cash flow in capital budgeting because ________.

Accepted Answer

A) depreciation is usually a constant amount each year over the life of the capital investment 
B) deducting depreciation from operating cash flows would be counting the lump-sum amount twice 
C) depreciation usually does not result in an increase in working capital 
D) depreciation usually has no effect on the disposal price of the machine 
A) depreciation is usually a constant amount each year over the life of the capital investment 
B) deducting depreciation from operating cash flows would be counting the lump-sum amount twice 
C) depreciation usually does not result in an increase in working capital 
D) depreciation usually has no effect on the disposal price of the machine

Question 8

Depreciation results in income tax cash savings that are equal to the depreciation expense multiplied by the company's income tax rate.

Accepted Answer

A) True 
 B)False

Question 9

The net present value (NPV)method calculates the expected monetary gain or loss from a project by discounting all expected future cash inflows and outflows back to the present point in time using the required rate of return.

Accepted Answer

A) True 
 B)False

Question 10

While calculating terminal recovery of working capital there are no tax consequences as there is no gain or loss on working capital.

Accepted Answer

A) True 
 B)False

Question 11

The net present value method can be used in situations where the required rate of return varies over the life of the project.

Accepted Answer

A) True 
 B)False

Question 12

Deducting depreciation from operating cash flows would result in counting the initial investment twice in a discounted cash flow analysis.

Accepted Answer

A) True 
 B)False

Question 13

Concose Park Department is considering a new capital investment.The cost of the machine is $280,000.The annual cost savings if the new machine is acquired will be $165,000.The machine will have a 3-year life and the terminal disposal value is expected to be $35,000.There are no tax consequences related to this decision.If Concose Park Department has a required rate of return of 14%,which of the following is closest to the present value of the project?

Accepted Answer

A) $190,880 
B) $87,750 
C) $126,755 
D) $103,130 
A) $190,880 
B) $87,750 
C) $126,755 
D) $103,130

Question 14

Match each one of the examples below with one of the stages of the capital budgeting decision model.
Stages:
1.Identify Projects
2.Obtain Information
3.Make Predictions
4.Make Decisions by Choosing Among Alternatives
5.Implement the Decision,Evaluate Performance,and Learn

Accepted Answer

@#IMG-DLM&_TB5540_00

Question 15

What are the four alternative methods for evaluating capital budgeting projects? What is an advantage and disadvantage of each method?

Accepted Answer

The four methods are: 1.Net Present Valu

Question 16

Assume your goal in life is to retire with $2,800,000.How much would you need to save at the end of each year if interest rates average 10% and you have a 30-year work life? (Round the final answer to the nearest whole dollar. )

Accepted Answer

A) $9333 
B) $17,022 
C) $186,667 
D) $160,464 
A) $9333 
B) $17,022 
C) $186,667 
D) $160,464

Question 17

Malive Park Department is considering a new capital investment.The following information is available on the investment.The cost of the machine will be $179,000.The annual cost savings if the new machine is acquired will be $35,000.The machine will have a 10-year life,at which time the terminal disposal value is expected to be zero.Malive Park is assuming no tax consequences.Malive Park has a 14% required rate of return.What is the payback period for the investment?

Accepted Answer

A) 4)1 years 
B) 5)1 years 
C) 10.0 years 
D) 10.2 years 
A) 4)1 years 
B) 5)1 years 
C) 10.0 years 
D) 10.2 years

Question 18

Explain capital budgeting and then briefly discuss each of the five stages of a capital budgeting project?

Accepted Answer

Capital budgeting is long-run planning f

Question 19

Difend Cleaners has been considering the purchase of an industrial dry-cleaning machine.The existing machine is operable for three more years and will have a zero disposal price.If the machine is disposed now,it may be sold for $100,000.The new machine will cost $430,000 and an additional cash investment in working capital of $100,000 will be required.The new machine will reduce the average amount of time required to wash clothing and will decrease labor costs.The investment is expected to net $140,000 in additional cash inflows during the first year of acquisition and $270,000 each additional year of use.The new machine has a three-year life,and zero disposal value.These cash flows will generally occur throughout the year and are recognized at the end of each year.Income taxes are not considered in this problem.The working capital investment will not be recovered at the end of the asset's life.
What is the net present value of the investment,assuming the required rate of return is 9%? Would the company want to purchase the new machine?

Accepted Answer

A) $(208,440);yes 
B) $(134,160);no 
C) $134,160;yes 
D) $208,440;no 
A) $(208,440);yes 
B) $(134,160);no 
C) $134,160;yes 
D) $208,440;no

Question 20

Capital budgeting is both a decision making and control tool.Which of the following is an example of capital budgeting as a control tool?

Accepted Answer

A) A company uses capital budgeting techniques to evaluate a group of prospective alternative projects. 
B) A large manufacturer sets up a "capital relief" fund to help supplement sustainability projects that would not meet targeted rates of returns without the capital relief fund assistance. 
C) When considering capital expenditures,a company looks at a minimum of six potential (alternative)projects. 
D) A company's capital project is not meeting the level of profitability expected,will not meet the targeted NPV,and is abandoned. 
A) A company uses capital budgeting techniques to evaluate a group of prospective alternative projects. 
B) A large manufacturer sets up a "capital relief" fund to help supplement sustainability projects that would not meet targeted rates of returns without the capital relief fund assistance. 
C) When considering capital expenditures,a company looks at a minimum of six potential (alternative)projects. 
D) A company's capital project is not meeting the level of profitability expected,will not meet the targeted NPV,and is abandoned.

Which of the following projects is rejected on the basis of net present value method?

The Ambitz Corporation has an annual cash inflow from operations from its investment in a capital asset of $44,000 (excluding the deprecation)each year for seven years.The corporation's income tax rate is 35%.Calculate the total after-tax cash inflow from operations for seven years.

Which of the following is a stage of the capital budgeting process that forecasts all potential cash flows attributable to the alternative projects?

Discounted cash flow methods do not consider the present value of the cash flows after the recovery of the initial investment.

The focus in capital budgeting should be on ________.

In calculating the net initial investment cash flows,any increase in working capital required for the project should be included.

Depreciation is usually NOT considered an operating cash flow in capital budgeting because ________.

Depreciation results in income tax cash savings that are equal to the depreciation expense multiplied by the company's income tax rate.

The net present value (NPV)method calculates the expected monetary gain or loss from a project by discounting all expected future cash inflows and outflows back to the present point in time using the required rate of return.

While calculating terminal recovery of working capital there are no tax consequences as there is no gain or loss on working capital.

The net present value method can be used in situations where the required rate of return varies over the life of the project.

Deducting depreciation from operating cash flows would result in counting the initial investment twice in a discounted cash flow analysis.

Match each one of the examples below with one of the stages of the capital budgeting decision model. Stages: 1.Identify Projects 2.Obtain Information 3.Make Predictions 4.Make Decisions by Choosing Among Alternatives 5.Implement the Decision,Evaluate Performance,and Learn

What are the four alternative methods for evaluating capital budgeting projects? What is an advantage and disadvantage of each method?

Assume your goal in life is to retire with $2,800,000.How much would you need to save at the end of each year if interest rates average 10% and you have a 30-year work life? (Round the final answer to the nearest whole dollar. )

Explain capital budgeting and then briefly discuss each of the five stages of a capital budgeting project?

Capital budgeting is both a decision making and control tool.Which of the following is an example of capital budgeting as a control tool?

The Manager and Management Accounting

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Activity-Based Management

Master Budget and Responsibility Accounting

Flexible Budgets,direct-Cost Variances,and Management Control

Flexible Budgets, overhead Cost Variances, and Management Control

Inventory Costing and Capacity Analysis

Determining How Costs Behave

Decision Making and Relevant Information

Strategy,balanced Scorecard,and Strategic Profitability Analysis

Pricing Decisions and Cost Management

Cost Allocation, customer-Profitability Analysis, and Sales-Variance Analysis

Allocation of Support-Department Costs, common Costs, and Revenues

Cost Allocation: Joint Products and Byproducts

Process Costing

Spoilage, rework, and Scrap

Balanced Scorecard: Quality and Time

Inventory Management, just-In-Time, and Simplified Costing Methods

Management Control Systems, transfer Pricing, and Multinational Considerations

Performance Measurement, compensation, and Multinational Considerations

Filters

Exam 21: Capital Budgeting and Cost Analysis

Which of the following projects is rejected on the basis of net present value method?

The Ambitz Corporation has an annual cash inflow from operations from its investment in a capital asset of $44,000 (excluding the deprecation)each year for seven years.The corporation's income tax rate is 35%.Calculate the total after-tax cash inflow from operations for seven years.

Which of the following is a stage of the capital budgeting process that forecasts all potential cash flows attributable to the alternative projects?

Discounted cash flow methods do not consider the present value of the cash flows after the recovery of the initial investment.

The focus in capital budgeting should be on ________.

In calculating the net initial investment cash flows,any increase in working capital required for the project should be included.

Depreciation is usually NOT considered an operating cash flow in capital budgeting because ________.

Depreciation results in income tax cash savings that are equal to the depreciation expense multiplied by the company's income tax rate.

The net present value (NPV)method calculates the expected monetary gain or loss from a project by discounting all expected future cash inflows and outflows back to the present point in time using the required rate of return.

While calculating terminal recovery of working capital there are no tax consequences as there is no gain or loss on working capital.

The net present value method can be used in situations where the required rate of return varies over the life of the project.

Deducting depreciation from operating cash flows would result in counting the initial investment twice in a discounted cash flow analysis.

Match each one of the examples below with one of the stages of the capital budgeting decision model. Stages: 1.Identify Projects 2.Obtain Information 3.Make Predictions 4.Make Decisions by Choosing Among Alternatives 5.Implement the Decision,Evaluate Performance,and Learn

What are the four alternative methods for evaluating capital budgeting projects? What is an advantage and disadvantage of each method?

Assume your goal in life is to retire with $2,800,000.How much would you need to save at the end of each year if interest rates average 10% and you have a 30-year work life? (Round the final answer to the nearest whole dollar. )

Explain capital budgeting and then briefly discuss each of the five stages of a capital budgeting project?

Capital budgeting is both a decision making and control tool.Which of the following is an example of capital budgeting as a control tool?

The Manager and Management Accounting

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Activity-Based Management

Master Budget and Responsibility Accounting

Flexible Budgets,direct-Cost Variances,and Management Control

Flexible Budgets, overhead Cost Variances, and Management Control

Inventory Costing and Capacity Analysis

Determining How Costs Behave

Decision Making and Relevant Information

Strategy,balanced Scorecard,and Strategic Profitability Analysis

Pricing Decisions and Cost Management

Cost Allocation, customer-Profitability Analysis, and Sales-Variance Analysis

Allocation of Support-Department Costs, common Costs, and Revenues

Cost Allocation: Joint Products and Byproducts

Process Costing

Spoilage, rework, and Scrap

Balanced Scorecard: Quality and Time

Inventory Management, just-In-Time, and Simplified Costing Methods

Management Control Systems, transfer Pricing, and Multinational Considerations

Performance Measurement, compensation, and Multinational Considerations

Filters