Exam 21: Capital Budgeting and Cost Analysis

The net present value method focuses on ________.

In the "obtain information" stage of capital budgeting,a company gathers information from all parts of the value chain to evaluate alternative projects.

Accrual accounting rate of return is calculated by dividing ________.

Relevant cash flows are expected future cash flows that differ among the alternative uses of investment funds.

In nominal rate of return,the inflation element is the premium above the real rate.

A commitment to a new capital project will always result in an increase in net working capital.

The Comil Corporation recently purchased a new machine for its factory operations at a cost of $328,325.The investment is expected to generate $115,000 in annual cash flows for a period of four years.The required rate of return is 13%.The old machine has a remaining life of four years.The new machine is expected to have zero value at the end of the four-year period.The disposal value of the old machine at the time of replacement is zero.What is the internal rate of return?

Investment A requires a net investment of $604,021 The required rate of return is 12% for the three-year annuity.What are the annual cash inflows if the net present value equals 0? (rounded)

In determining whether to keep a machine or replace it,the original cost of the machine is a sunk cost and is NOT a relevant factor.

The reason to have a post-investment audit is ________.

Diamond Manufacturing Company provides glassware machines for major department store retailers.The company has been investigating a new piece of machinery for its production department.The old equipment has a remaining life of eight years and the new equipment will cost $141,969 with a eight-year life.The expected additional cash inflows are $37,000 per year.What is the internal rate of return?

Which of the following is a stage of the capital budgeting process that indicates potential capital investments that agree with an organization's strategy?

Network Service Center is considering purchasing a new computer network for $82,000.It will require additional working capital of $13,000.Its anticipated eight-year life will generate additional client revenue of $33,000 annually with operating costs,excluding depreciation,of $15,000.At the end of eight years,it will have a salvage value of $9,500 and return $5,000 in working capital.Taxes are not considered. Required: a.If the company has a required rate of return of 14%,what is the net present value of the proposed investment? b.What is the internal rate of return?

NPV methods can be used to estimate the present value of a customer to a business so that strategic decisions can be made to retain customers and lower churn rates.

Tax deductions for depreciation result in tax savings that partially offset the cost of acquiring the capital asset.

An example of a sunk cost in a capital budgeting decision for new equipment is ________.

Which of the following is a component of net-initial-investment cash flows?

The use of an accelerated method of depreciation for tax purposes would usually decrease the present value of the investment.

Which of the following best explains why the net present value method of capital budgeting is preferred over the internal rate-of-return method?

Which of the following statements is true of a post-investment audit?