FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 10: Planning for Capital Investments

Show Answer

Share

---

All types

Filters

Study Flashcards

Question 41

True/False

Review LaterAdd Note

Review Later

When a capital investment is expected to provide unequal annual cash inflows,the payback period cannot be calculated.

A) True
B) False

Correct Answer

verified

Show Answer

Question 42

Essay

Review LaterAdd Note

Review Later

Indicate whether each of the following statements is

Correct Answer

verified

The net present value method provides a ...

View Answer

Show Answer

Question 43

Multiple Choice

Review LaterAdd Note

Select the incorrect statement concerning the internal rate of return (IRR) method of evaluating capital projects.

An investment that cost $30,000 provided annual cash inflows of $9,000 per year for five years.The desired rate of return is 10%.What is the internal rate of return from the investment?

Burgess Corporation is considering purchasing equipment that costs $235,000.The equipment has an estimated useful life of 5 years and no salvage value.Burgess believes that the annual cash inflows from using the equipment will be $65,000. Required: 1)Calculate the net present value of the equipment assuming that Burgess's cost of capital is 12%.Is the equipment an acceptable investment? 2)Calculate the net present value of the equipment assuming that Burgess's cost of capital is 10%.Is the equipment an acceptable investment? 3)Based on your results to parts 1)and 2),estimate the internal rate of return for the investment in the equipment.

The process by which management evaluates long-term investment decisions involving long term operational assets is called:

Depreciation on a capital investment (such as equipment)has the effect of decreasing the amount of income taxes that the company owning the asset must pay.

Five years ago,Burton Company purchased equipment with an expected useful life of 5 years.The initial cost of the equipment was $160,000.Burton's cost of capital is 12%;when it purchased the equipment,Burton computed a net present value of $15,824 for the investment.During the current year,the equipment reached the end of its useful life.Burton determined that,over the 5-year life,the equipment had generated annual cash inflows of $46,000. Required: Conduct a post-audit to determine whether the equipment achieved the net present value the company had expected.Based on the results actually achieved,was the asset in fact an acceptable investment?

Assuming equal time intervals between the payments and a constant rate of return,which of the following cash flow patterns represents an annuity? $\begin{array}{|l|c|c|c|c|c|c|}\hline & \text { Year 1 } & \underline{\text { Year 2 }} & \underline{\text { Year 3 }} & \underline{\text { Year 4 }} & \underline{\text { Year 5 }} & {\text { Year 6 }} \\\hline \text { A) } & \$ 1,000 & \$ 1,000 & \$ 1,000 & \$ 1,000 & \$ 1,000 & \$ 1,000 \\\hline \text { B) } & \$ 500 & \$-0- & \$ 500 & \$ 500 & \$ 500 & \$-0- \\\hline \text { C) } & \$ 100 & \$ 200 & \$ 300 & \$ 400 & \$ 500 & \$ 600 \\\hline\end{array}$

Weston Company is considering a capital project that delivers a $50,000 annual net cash flow before tax.The investment will result in annual depreciation expense of $10,000 over the project's four-year useful life.Assuming a tax rate of 40%,what amount of annual after-tax net cash flow will be provided by this project?

Matt needs to compute the present value of $5,000 to be received four years from now.He should multiply $5,000 by the appropriate present value interest factor obtained from the present value of $1 table.

Evergreen Company has two investment opportunities.Both investments cost $5,000 and will provide the same total future cash inflows.The cash receipt schedule for each investment is given below: $\begin{array}{|l|r|r|}\hline & \underline{\text { Investment I }} &\underline{ \text { Investment II }} \\\hline \text { Period 1 } & \$ 1,000 & \$ 3,000 \\\hline \text { Period 2 } & 1,000 & 2,000 \\\hline \text { Period 3 } & 2,000 & 2,000 \\\hline \text { Period 4 } & \underline{4,000} & \underline{1,000} \\\hline \text { Total } & \underline{\$ 8,000} & \underline{\$ 8,000} \\\hline & & \\\hline\end{array}$ Select the correct statement.

Capital investments differ from stock and bond investments in that stock and bond investments can be sold in organized markets.

The time value of money concept recognizes the fact that the present value of a dollar to be received in the future is worth more than a dollar.

Indicate whether each of the following statements is

Harvey wants to determine the net present value for a proposed capital investment.He has determined the desired rate of return,the expected investment time period,a series of cash inflows of equal amount,the salvage value of the investment,and the required cash outflows.Which of the following tables would most likely be used to calculate the net present value of the investment?

Young Corporation is considering purchasing equipment that costs $80,000 and is expected to provide the following cash inflows over its five-year useful life: $\begin{array}{|l|l|}\hline \text { Year } & \text { Cash inflow } \\\hline 1 & \$ 18,000 \\\hline 2 & 22,000 \\\hline 3 & 24,000 \\\hline 4 & 16,000 \\\hline 5 & 9,000 \\\hline\end{array}$ What is the payback period of this investment project (rounded to the nearest year) ?

The cost of capital is sometimes referred to as the hurdle or discount rate.

Cash outflows generated by capital investments include all of the following except:

Indicate whether each of the following statements is