Exam 21: Capital Budgeting and Cost Analysis

Forise Water Company drills small commercial water wells.The company is in the process of analyzing the purchase of a new drill.Information on the proposal is provided below. What is the net present value of the investment? Assume there is no recovery of working capital.

Which of the following methods utilizes discounted cash flows when analyzing potential capital expenditures? Methods: 1)Accrual accounting rate-of-return 2)Internal Rate of Return (IRR) 3)Payback Period 4)Net Present Value (NPV)

The internal rate of return method assumes that project cash flows can be reinvested at the project's ________.

Accrual accounting rate of return is calculated by dividing an increase in expected average annual after-tax operating income by the net initial or average investment.

The Golden Shades Corporation disposes a capital asset with an original cost of $320,000 and accumulated depreciation of $140,000 for a salvage price of $42,000.Golden Shades's tax rate is 35%.Calculate the after-tax cash inflow from the disposal of the capital asset.

In the net present value (NPV)method,pre-tax cash flows should be used instead of after-tax cash flows.

The higher the probability of customer churn,the higher the NPV of a customer.

The Enor Machine Company is evaluating a capital expenditure proposal that requires an initial investment of $99,360 and has predicted cash inflows of $20,000 per year for 8 years.It will have no salvage value. Required: a.Using a required rate of return of 10%,determine the net present value of the investment proposal. b.Determine the proposal's internal rate of return.

Which of the following is the first stage to the capital budgeting process?

The NPV method is the preferred method over IRR for selecting projects because ________.

The relevant terminal disposal price of a machine equals the ________.

An annuity is ________.

The accrual accounting rate-of-return method is a discounted cash flow approach to analyzing possible capital budget expenditures.

A "what-if" technique that examines how a result will change if the original predicted data are NOT achieved or if an underlying assumption changes is called ________.

Which of the following methods is described as follows: "It calculates the expected monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time using the required rate of return"?

Which of the following is another term for required rate of return?

The net initial investment for a piece of construction equipment is $2,900,000.Annual cash inflows are expected to increase by $500,000 per year.The equipment has an 10-year useful life.What is the payback period?

Which of the following is a stage of the capital budgeting process during which a plant manager is queried for assembly time?

If internal rate of return is less than required rate of return,the net present value is positive.

If the net present value for a project is positive,which of the following is true?