Ch. 15 Quiz- Accounting Final
Average rate of return equals average investment divided by estimated average annual income.
False
When evaluating a proposal by use of the net present value method, if there is an excess of the present value of future cash inflows over the amount to be invested, the rate of return on the proposal is less than the rate used in the analysis.
False
When evaluating two competing proposals with unequal lives, management should give greater consideration to th
False
Which method of evaluating capital investment proposals uses present value concepts to compute the rate of return from the net cash flows expected from capital investment proposals?
Internal rate of return
Which method of evaluating capital investment proposals uses the concept of present value to compute a rate of return?
Internal rate of return
Which of the following are present value methods of analyzing capital investment proposals?
Net present value and internal rate of return
When evaluating a proposal by use of the net present value method, if there is an excess of the present value of future cash inflows over the amount to be invested, the rate of return on the proposal exceeds the rate used in the analysis.
True
Decisions to install new equipment, replace old equipment, and purchase or construct a new building are examples of:
capital investment analysis
The primary advantages of the average rate of return method of analyzing a capital investment proposal are its ease of computation and the fact that:
it emphasizes the amount of income earned over the life of the proposal
All of the following qualitative considerations may impact upon capital investments analysis except:
manufacturing sunk cost
One issue to consider when investing in assets in foreign countries is:
that local currency may weaken to the dollar causing adverse effects on the investment's return
In general, present value methods of analyzing capital investments are more desirable than methods ignoring present values because:
the present value methods consider that a dollar today is worth more than a dollar in the future due to the potential earning power of that dollar
All of the following qualitative considerations may influence capital investments analysis except:
time value of money
The payback period is determined using which of the following formulas?
Amount to be invested/Annual net cash flows
In capital rationing, an initial screening of alternative proposals is usually performed by establishing minimum standards. Which of the following evaluation methods are normally used?
Cash payback method and average rate of return method
An analysis of a proposal by the net present value method indicated that the present value exceeded the amount to be invested. Which of the following statements best describes the results of this analysis?
The proposal is desirable and the rate of return expected from the proposal exceeds the minimum rate used for the analysis
Care must be taken while making capital investment decisions since it involves a long-term commitment of funds and affects operations for several years.
True
In capital rationing, alternative proposals are initially screened by establishing minimum standards using the cash payback and the average rate of return methods.
True
Qualitative considerations in capital investment decisions are most appropriate for strategic investments or those that are designed to affect a company's long-term ability to generate profits.
True
The methods of evaluating capital investment proposals can be grouped into two general categories: (1) methods that ignore present values and (2) methods that use present values.
True
