Exam 14: Differential Analysis, Profitability Analysis and Capital Budgeting

List the following steps in the decision-making process in the order in which they are carried out. I Gather information II Evaluate the alternatives III Define the problem IV Choose a course of action

Which statement concerning the internal rate of return method of capital budgeting is true?

Lamb Ltd is evaluating an investment proposal using the payback method. Cash inflows are expected to be $3000 in year 1, $3500 in year 2, $5000 in year 3, and $4500 in year 4. The initial investment required is $7000. Assuming even cash inflows within each year what is the payback period?

Return on investment equals:

Which of these is not true for the payback method of investment analysis?

Petnet Corporation purchased capital equipment two years ago for $50 000. The firm is considering selling the equipment outright for $20 000 or, alternatively, trading it in on new equipment for an allowance of $24 000 The sunk cost associated with the equipment is:

Anton Wine Company is considering a project with annual after-tax cash flows of $4000 per year for 5 years. The company's cost of capital is 5%. Using the net present value method, what is the maximum amount that the company should invest?

The purpose of incremental analysis is to find the alternative:

Rank these investments in order payback period showing the best project first. Investment A - 4.7 years Investment B - 3.8 years Investment C - 4 years Investment D - 3.2 years

In differential analysis irrelevant costs include costs that are:

Which item is a non-cash expense?

Using the information provided by Tasco Sales, calculate the return on investment. Sales $1 900 000 Operating profit 30 000 Average operating assets 600 000 Shareholders' equity 50 000 Minimum required rate of return 10%

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

Equipment A costing $80 000 is expected to generate $12 000 annually in cash inflows during its life of 8 years. Equipment B costing $120 000 is expected to generate $17 000 annually in cash inflows during its life of 8 years. Equipment C costing $60 000 is expected to generate $8000 annually in cash inflows during its life of 9 years. Rank the three investments in terms of payback period.

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

Which of these represents the number of sales dollars generated by each dollar invested in assets?