Question 1

An investment that costs $5,000 will produce annual cash flows of $2,000 for a period of 4 years. Given a desired rate of return of 8%, what is the present value index? Use Appendix Table 2. (Do not round your intermediate calculations. Round your answer to three decimal points.)

Accepted Answer

A)   0.755.
B)   1.600.
C)   2.500.
D)   1.325.E) A) and D)
F) A) and B)

Question 2

The present value of an annuity of $1 table could be constructed using the factors contained in the present value of $1 table.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A)   capital investment analysis.
B)   activity based management.
C)   strategic business analysis.
D)   fixed cost analysis.E) A) and D)
F) B) and C)

Question 4

Which statement characterizes the time value of money concept?

Accepted Answer

A)   The future value of a present dollar is greater than one dollar.
B)   The present value of a future dollar is greater than one dollar.
C)   The timing of cash flows is not relevant to decision making.
D)   None of these answers is correct.E) A) and D)
F) C) and D)

Question 5

Mr. J's Bagels invested in a new oven for $14,000. The oven reduced the amount of time for baking which increased production and sales for five years by the following amounts of cash inflows:  Using the averaging method, the payback period for the investment in the oven would be:

Accepted Answer

A)   5.0 years.
B)   2.3 years.
C)   2.0 years.
D)   0.5 years.E) None of the above
F) A) and B)

Question 6

When calculating the present value of an ordinary annuity, it is assumed that:

Accepted Answer

A)   cash flows will be reinvested at the required rate of return.
B)   cash flows occur at the end of each accounting period.
C)   the investor will wait until the end of the investment period to withdraw cash flows.
D)   cash flows will be reinvested at the required rate of return and cash flows occur at the end of each accounting period.E) A) and D)
F) A) and C)

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Assuming equal time intervals between the payments and a constant rate of return, which of the following cash flow patterns represents an annuity?

Accepted Answer

A)   A
B)   B
C)   C
D)   Any of the answers can represent an annuity.E) A) and D)
F) B) and D)

Question 9

A postaudit should be performed at the end of a capital investment project to determine whether the expected results were actually achieved.

Accepted Answer

A) True 
 B)False

Question 10

An investment that costs $40,000 will produce annual cash flows of $12,000 for a period of 4 years. Given a desired rate of return of 10%, what will the investment generate? Use Appendix Table 2. (Do not round your intermediate calculations. Round your answer to the nearest whole dollar.)

Accepted Answer

A)   A positive net present value of $38,038.
B)   A positive net present value of $1,962.
C)   A negative net present value of $38,038.
D)   A negative net present value of $1,962.E) None of the above
F) All of the above

Question 11

Shenandoah Springs Company is considering two investment opportunities whose cash flows are provided below:  The company's hurdle rate is 12%. What is the present value index of Investment B? Use Appendix Table 1. (Do not round your intermediate calculations. Round your answer to two decimal points.)

Accepted Answer

A)   1.01
B)   1.16
C)   0.86
D)   None of these answers is correct.E) A) and C)
F) A) and B)

Question 12

The future value of $1 table should be used to discount lump sum cash flows expected to occur in the future.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements is incorrect?

Accepted Answer

A)   The further into the future a cash receipt is expected to occur, the lower is its present value.
B)   The return on investment measures the compensation a company expects to receive from investing in capital assets.
C)   Most companies use their cost of capital to estimate the minimum return on investment required from capital investments.
D)   When a company invests in capital assets, it sacrifices future dollars for the opportunity to receive present dollars.E) A) and B)
F) None of the above

Question 14

Kerwin Company is considering purchase of equipment that costs $50,000. If the useful life is expected to be 5 years and Crown's required rate of return is 12%, what is the minimum annual cash inflow that the equipment must offer for the investment to be acceptable? (Do not round your intermediate calculations. Round your final answer to the nearest dollar.)

Accepted Answer

A)   $8,929
B)   $13,870
C)   $12,076
D)   $17,623E) A) and B)
F) A) and C)

Question 15

If the net present value for a capital investment is equal to zero, the internal rate of return for the investment is equal to the required rate of return.

Accepted Answer

A) True 
 B)False

Question 16

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:  Select the correct statement.

Accepted Answer

A)   Evergreen should choose Investment I because of the time value of money.
B)   Evergreen should choose Investment II because it generates more immediate cash inflows.
C)   Evergreen should be indifferent between the two investments because they provide the same total cash inflows.
D)   Time value of money techniques are not useful for comparing these investments.E) B) and C)
F) All of the above

Question 17

The purposes of the postaudit for capital investments include all of the following except:

Accepted Answer

A)   continuous improvement.
B)   rewarding managers for increasing idle cash.
C)   determining whether the project generated the results expected.
D)   encouraging managers to closely scrutinize capital investment decisions.E) All of the above
F) B) and D)

Question 18

The amount of the depreciation tax shield can be calculated by multiplying the amount of depreciation expense by the tax rate.

Accepted Answer

A) True 
 B)False

Question 19

Findell Corporation is considering two projects, A and B, and it has gathered the following estimates for the project:  What is the present value index for project A?

Accepted Answer

A)   1.096
B)   1.124
C)   0.889
D)   0.913E) None of the above
F) A) and B)

Question 20

Cash outflows from a capital investment project include:

Accepted Answer

A)   increases in operating expenses.
B)   the reduction in the amount of working capital.
C)   terminal salvage value.
D)   all of these answers are correct.E) A) and B)
F) A) and C)

Exam 16: Planning for Capital Investments

An investment that costs $5,000 will produce annual cash flows of $2,000 for a period of 4 years. Given a desired rate of return of 8%, what is the present value index? Use Appendix Table 2. (Do not round your intermediate calculations. Round your answer to three decimal points.)

Correct Answer
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A postaudit should be performed at the end of a capital investment project to determine whether the expected results were actually achieved.

Correct Answer
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Which of the following statements is incorrect?

Correct Answer
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The amount of the depreciation tax shield can be calculated by multiplying the amount of depreciation expense by the tax rate.

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

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

Correct Answer
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The present value of an annuity of $1 table could be constructed using the factors contained in the present value of $1 table.

Correct Answer
verified

Assuming equal time intervals between the payments and a constant rate of return, which of the following cash flow patterns represents an annuity?

Correct Answer
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The purposes of the postaudit for capital investments include all of the following except:

Correct Answer
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Which statement characterizes the time value of money concept?

Correct Answer
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Findell Corporation is considering two projects, A and B, and it has gathered the following estimates for the project: What is the present value index for project A?

Correct Answer
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Shenandoah Springs Company is considering two investment opportunities whose cash flows are provided below: The company's hurdle rate is 12%. What is the present value index of Investment B? Use Appendix Table 1. (Do not round your intermediate calculations. Round your answer to two decimal points.)

Correct Answer
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The future value of $1 table should be used to discount lump sum cash flows expected to occur in the future.

Correct Answer
verified

An investment that costs $40,000 will produce annual cash flows of $12,000 for a period of 4 years. Given a desired rate of return of 10%, what will the investment generate? Use Appendix Table 2. (Do not round your intermediate calculations. Round your answer to the nearest whole dollar.)

Correct Answer
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Cash outflows from a capital investment project include:

Correct Answer
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When calculating the present value of an ordinary annuity, it is assumed that:

Correct Answer
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Mr. J's Bagels invested in a new oven for $14,000. The oven reduced the amount of time for baking which increased production and sales for five years by the following amounts of cash inflows: Using the averaging method, the payback period for the investment in the oven would be:

Correct Answer
verified

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: Select the correct statement.

Correct Answer
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If the net present value for a capital investment is equal to zero, the internal rate of return for the investment is equal to the required rate of return.

Correct Answer
verified

Exam 16: Planning for Capital Investments

An investment that costs $5,000 will produce annual cash flows of $2,000 for a period of 4 years. Given a desired rate of return of 8%, what is the present value index? Use Appendix Table 2. (Do not round your intermediate calculations. Round your answer to three decimal points.)

Correct AnswerverifiedShow Answer

A postaudit should be performed at the end of a capital investment project to determine whether the expected results were actually achieved.

Correct AnswerverifiedShow Answer

Which of the following statements is incorrect?

Correct AnswerverifiedShow Answer

The amount of the depreciation tax shield can be calculated by multiplying the amount of depreciation expense by the tax rate.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The present value of an annuity of $1 table could be constructed using the factors contained in the present value of $1 table.

Correct AnswerverifiedShow Answer

Assuming equal time intervals between the payments and a constant rate of return, which of the following cash flow patterns represents an annuity?

Correct AnswerverifiedShow Answer

The purposes of the postaudit for capital investments include all of the following except:

Correct AnswerverifiedShow Answer

Which statement characterizes the time value of money concept?

Correct AnswerverifiedShow Answer

Findell Corporation is considering two projects, A and B, and it has gathered the following estimates for the project: What is the present value index for project A?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The future value of $1 table should be used to discount lump sum cash flows expected to occur in the future.

Correct AnswerverifiedShow Answer

An investment that costs $40,000 will produce annual cash flows of $12,000 for a period of 4 years. Given a desired rate of return of 10%, what will the investment generate? Use Appendix Table 2. (Do not round your intermediate calculations. Round your answer to the nearest whole dollar.)

Correct AnswerverifiedShow Answer

Cash outflows from a capital investment project include:

Correct AnswerverifiedShow Answer

When calculating the present value of an ordinary annuity, it is assumed that:

Correct AnswerverifiedShow Answer

Mr. J's Bagels invested in a new oven for $14,000. The oven reduced the amount of time for baking which increased production and sales for five years by the following amounts of cash inflows: Using the averaging method, the payback period for the investment in the oven would be:

Correct AnswerverifiedShow Answer

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: Select the correct statement.

Correct AnswerverifiedShow Answer

If the net present value for a capital investment is equal to zero, the internal rate of return for the investment is equal to the required rate of return.

Correct AnswerverifiedShow Answer

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