Question 1

An increase in the discount rate:

Accepted Answer

A) Will reduce present values 
B) Will have no effect on net present value 
C) Will increase present values 
D) May either increase or decrease present values,depending on the state of the economy 
A) Will reduce present values 
B) Will have no effect on net present value 
C) Will increase present values 
D) May either increase or decrease present values,depending on the state of the economy A

Question 2

Chemco produces a number of joint products.At the split-off point there are 100 units of A,400 units of B and 500 units of c.Total joint costs are $1000.Other information,per unit,is as follows:
$\begin{array}{lrrr}&A&B&C\
&\$&\$&\$\
\text { Selling price at split-off point } & 6 & 8 & 7 \
\text { Selling price if processed further } & 12 & 11 & 10 \
\text { Cost to process further } & 4 & 4 & 3
\end{array}$
Which products,if any,should be processed further?

Accepted Answer

A) B and C 
B) A 
C) A and B 
D) A,B and C 
A) B and C 
B) A 
C) A and B 
D) A,B and C B

Question 3

The cost of capital is:

Accepted Answer

A) The cost of borrowing from a bank 
B) The cost involved in issuing new shares 
C) The rate of interest on government bonds 
D) The weighted average of the cost of obtaining funds in the form of debt and/or equity 
A) The cost of borrowing from a bank 
B) The cost involved in issuing new shares 
C) The rate of interest on government bonds 
D) The weighted average of the cost of obtaining funds in the form of debt and/or equity D

Question 4

The most common method of allocating joint product costs is on the basis of the products' relative s________ value.

Accepted Answer

The answer of The most common method of allocating joint...

Question 5

The point in the production process at which joint products become separate products is called the:

Accepted Answer

A) Constraint point 
B) Split-off point 
C) Differential point 
D) Acceptance point 
A) Constraint point 
B) Split-off point 
C) Differential point 
D) Acceptance point

Question 6

The decision to process a joint product further is influenced by:

Accepted Answer

A) The amount of fixed overhead which has been absorbed by the product 
B) The amount of costs already incurred for the product 
C) The costs of further processing 
D) Common costs allocated to the product 
A) The amount of fixed overhead which has been absorbed by the product 
B) The amount of costs already incurred for the product 
C) The costs of further processing 
D) Common costs allocated to the product

Question 7

The time value of money concept is given consideration in long-range investment decisions by:

Accepted Answer

A) Investing only in short term projects 
B) Assigning greater value to more immediate cash flows 
C) Assuming equal annual cash flow patterns 
D) Using the payback method and at least one other method to make an evaluation 
A) Investing only in short term projects 
B) Assigning greater value to more immediate cash flows 
C) Assuming equal annual cash flow patterns 
D) Using the payback method and at least one other method to make an evaluation

Question 8

Milam Company requires a 12% return on all investments.How much will the company be willing to pay for machine A if the machine will pay $8000 per year for 10 years?

Accepted Answer

A) $2576 
B) $8000 
C) $45 202 
D) $80 000 
A) $2576 
B) $8000 
C) $45 202 
D) $80 000

Question 9

The A Justed Company is evaluating an investment proposal using the payback method.Cash inflows are expected to be $3000 in year 1,$5000 in year 2,$4000 in year 3,and $6000 in year 4.The initial investment required is $6000.Assuming even cash inflows within each year what is the payback period?

Accepted Answer

A) 1.33 years 
B) 1.6 years 
C) 2 years 
D) 3 years 
A) 1.33 years 
B) 1.6 years 
C) 2 years 
D) 3 years

Question 10

The internal rate of return method compares the discount rate that produces a net present value of z_____ with the required rate of return for an investment.

Accepted Answer

The answer of The internal rate of return method compares...

Question 11

Porter Trucking is considering purchasing a new asset with an initial cost of $50 000 and an estimated annual income of $19 000.Cash operating expenses are expected to be $10 000 per year.Straight-line depreciation will be used over the five-year life of the asset and salvage value of $10 000 is to be considered in computing depreciation.Assuming that the income tax rate is 40%,what is the amount of annual tax savings from depreciation? Assume the straight-line depreciation method is used for both accounting and tax purposes.

Accepted Answer

A) $3200 
B) $4000 
C) $4800 
D) $6000 
A) $3200 
B) $4000 
C) $4800 
D) $6000

Question 12

N_______ p__________ value is the difference between the discounted expected future net cash flows and the cost of the investment.

Accepted Answer

The answer of N_______ p__________ value is the difference between...

Question 13

The net present value i_______ is calculated as the present value of net cash inflows divided by the cost of the investment.

Accepted Answer

The answer of The net present value i_______ is calculated...

Question 14

Hot Rocks Corporation estimates that it can save $2,800 a year in cash operating costs for the next ten years if it buys a special purpose machine at a cost of $11,000.No residual value is expected.The firm's minimum desired rate of return is 12%.Compute the net present value.

Accepted Answer

A) $6,289.66 
B) $4,314.00 
C) $2,850.29 
D) $4,820.56 
A) $6,289.66 
B) $4,314.00 
C) $2,850.29 
D) $4,820.56

Question 15

A cost which differs between alternative courses of action is a:

Accepted Answer

A) Relevant cost 
B) Sunk cost 
C) Controllable cost 
D) Non-joint cost 
A) Relevant cost 
B) Sunk cost 
C) Controllable cost 
D) Non-joint cost

Question 16

How does depreciation affect net cash flows?

Accepted Answer

A) Reduces cash inflows 
B) Increases cash outflows 
C) Reduces taxation payable 
D) Increases taxation payable 
A) Reduces cash inflows 
B) Increases cash outflows 
C) Reduces taxation payable 
D) Increases taxation payable

Question 17

What amount must be deposited today at 6% to grow to $900 in three years?

Accepted Answer

A) $405.70 
B) $755.64 
C) $817.22 
D) $456.79 
A) $405.70 
B) $755.64 
C) $817.22 
D) $456.79

Question 18

Return on investment is a function of profit margin and a_______ turnover.

Accepted Answer

The answer of Return on investment is a function of...

Question 19

Select the incorrect statement concerning the return on average investment method of capital budgeting.

Accepted Answer

A) It measures profit in the same way as the income statement 
B) It is easy to use 
C) It distinguishes between investments requiring an immediate payment of cash and those where payment is in the future 
D) It considers profits over the useful life of the investment 
A) It measures profit in the same way as the income statement 
B) It is easy to use 
C) It distinguishes between investments requiring an immediate payment of cash and those where payment is in the future 
D) It considers profits over the useful life of the investment

Question 20

Which of these is not a reason why capital budgeting decisions must be carefully considered:

Accepted Answer

A) They involve large sums of money 
B) Resources are committed for long periods 
C) Cash flows must be discounted 
D) Because they are long-term there is greater risk that external conditions may alter 
A) They involve large sums of money 
B) Resources are committed for long periods 
C) Cash flows must be discounted 
D) Because they are long-term there is greater risk that external conditions may alter

Exam 14: Differential Analysis,profitability Analysis and Capital Budgeting

An increase in the discount rate:

The cost of capital is:

The most common method of allocating joint product costs is on the basis of the products' relative s________ value.

The point in the production process at which joint products become separate products is called the:

The decision to process a joint product further is influenced by:

The time value of money concept is given consideration in long-range investment decisions by:

Milam Company requires a 12% return on all investments.How much will the company be willing to pay for machine A if the machine will pay $8000 per year for 10 years?

The A Justed Company is evaluating an investment proposal using the payback method.Cash inflows are expected to be $3000 in year 1,$5000 in year 2,$4000 in year 3,and $6000 in year 4.The initial investment required is $6000.Assuming even cash inflows within each year what is the payback period?

The internal rate of return method compares the discount rate that produces a net present value of z_____ with the required rate of return for an investment.

N_______ p__________ value is the difference between the discounted expected future net cash flows and the cost of the investment.

The net present value i_______ is calculated as the present value of net cash inflows divided by the cost of the investment.

Hot Rocks Corporation estimates that it can save $2,800 a year in cash operating costs for the next ten years if it buys a special purpose machine at a cost of $11,000.No residual value is expected.The firm's minimum desired rate of return is 12%.Compute the net present value.

A cost which differs between alternative courses of action is a:

How does depreciation affect net cash flows?

What amount must be deposited today at 6% to grow to $900 in three years?

Return on investment is a function of profit margin and a_______ turnover.

Select the incorrect statement concerning the return on average investment method of capital budgeting.

Which of these is not a reason why capital budgeting decisions must be carefully considered:

Decision Making and the Role of Accounting

Financial Statements for Decision Making

Recording Transactions

Adjusting the Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Retailing

Accounting for Systems

Accounting for Manufacturing

Cost Accounting Systems

Cash Management and Internal Control

Cost-Volume-Profit Analysis for Decision Making

Budgeting for Planning and Control

Performance Evaluation for Managers

Partnerships: Formation,operation and Reporting

Companies: Formation and Operations

Regulation and the Conceptual Framework

Receivables

Inventories

Non-Current Assets: Acquisition and Depreciation

Non-Current Assets: Revaluation,disposal and Other Aspects

Liabilities

Presentation of Financial Statements

Liabilities

Analysis and Interpretation of Financial Statements

Filters

N_ p____ value is the difference between the discounted expected future net cash flows and the cost of the investment.