acc SB chp 7

The factor of the internal rate of return is 5.033 for a project lasting 7 years. The internal rate of return is

9

Typical capital budgeting decisions include Blank______ decisions. Multiple select question. cost reduction equipment selection lease or buy employee hiring and firing product and service pricing

cost reduction equipment selection lease or buy

Which of the following is NOT a typical capital budgeting cash outflow? Multiple choice question. Initial equipment investment Working capital invested Installation costs Cost reductions

cost reductions

When a capital investment decision is being made between two or more alternatives, the project with the shortest payback period is always the most desirable investment. True false question. True False

false

Typical capital budgeting cash outflows include Blank______. Multiple select question. cost reductions salvage value of old equipment installation costs working capital invested initial equipment investments

installation costs working capital invested initial equipment investments

The internal rate of return is Blank______. Multiple choice question. a project's minimum required rate of return a discount rate of zero the appropriate salvage value of purchased equipment the rate of return of an investment project over its useful life

the rate of return of an investment project over its useful life

A project has an acceptable rate of return, if the net present value is Blank______. Multiple choice question. zero or below zero or above above zero only below zero only

zero or above

Select the capital budgeting approaches that use discounted cash flows. Multiple select question. Simple rate of return method Cost-volume-profit method Payback method Net present value method Internal rate of return method

Net present value method Internal rate of return method

Which of the following statements are true? Multiple select question. The net present value method does not provide for return of the original investment. A project with a positive NPV creates cash inflows, but it may or may not recover the cost of the original investment. A project with a positive NPV will recover the original cost of the investment plus sufficient cash inflows to compensate for tying up funds. The net present value method automatically provides for return of the original investment.

A project with a positive NPV will recover the original cost of the investment plus sufficient cash inflows to compensate for tying up funds. The net present value method automatically provides for return of the original investment.

What assumption underlies net present value analysis? Multiple choice question. All cash flows generated by an investment project are immediately reinvested at a rate of return equal to the discount rate. All cash flows including the initial investment are paid/received at the beginning of the period. If the net present value of a project is positive, the company's net income will increase. If the net present value of a project is positive, its payback period will be acceptable.

All cash flows generated by an investment project are immediately reinvested at a rate of return equal to the discount rate.

Which of the following statements are true? Multiple select question. When the net present value method is used, the discount rate equals the hurdle rate. In order for a project to be acceptable, the discount rate must be higher than the minimum acceptable rate of return. The cost of capital may be used to screen out undesirable projects. When using the internal rate of return method, the cost of capital is used as the hurdle rate

When the net present value method is used, the discount rate equals the hurdle rate. The cost of capital may be used to screen out undesirable projects. When using the internal rate of return method, the cost of capital is used as the hurdle rate.

A capital investment project's payback period is the Blank______. Multiple choice question. estimated length of the capital investment project from the initial cash outflow to the end of the project length of time it takes for the project to begin to generate cash inflows useful life of the capital asset purchased length of time it takes for the project to recover its initial cost from the net cash inflows generated

length of time it takes for the project to recover its initial cost from the net cash inflows generated

Synonyms for the simple rate of return are the Blank______ rate of return and the Blank______ rate of return. Multiple choice question. cash flow, net net, adjusted accounting, unadjusted accounting, cash flow

accounting, unadjusted

Capital budgeting decisions include Blank______.

acquiring a new facility to increase capacity choosing to lease or buy new equipment deciding to replace old equipment determining which equipment to purchase among available alternatives purchasing new equipment to reduce cost

The net present value method assumes that all cash flow other than the initial investment occur Blank______ the period Multiple choice question. at the beginning of evenly throughout at the end of

at the end of

To screen out undesirable investments, Blank______ use(s) the cost of capital. Multiple choice question. only the internal rate of return method neither the net present value nor internal rate of return methods only the net present value method both the net present value and internal rate of return methods

both the net present value and internal rate of return methods

Another term for the minimum required rate of return is the cost of _______________________

capital

How managers plan significant investments in projects that have long term implications such as purchasing new equipment or introducing new products is called Blank______. Multiple choice question. capital budgeting directing funds controlling costs investment initiative

capital budgeting

The payback method Blank______. Multiple select question. cannot evaluate projects with uneven cash flows does not consider the time value of money ignores all cash flows that occur after the payback period does not consider how quickly an investment is recovered is not a true measure of investment profitability

does not consider the time value of money ignores all cash flows that occur after the payback period is not a true measure of investment profitability

Because of the time value of money, projects that promise Blank______ returns are preferable to those that promise the opposite. Multiple choice question. later lower higher earlier

ealier

The basic premise of the payback method is the Blank______, the more desirable the investment. Multiple choice question. higher the net present value slower the cost of the investment is recovered faster the cost of the investment is recovered lower the internal rate of return

faster the cost of the investment is recovered

To determine if a project is acceptable compare the internal rate of return to the company's Blank______. Multiple choice question. tax rate hurdle rate sales ratio profit margin

hurdle

When net cash inflow is the same every year, the equation used to calculate the factor of the internal rate of return is Blank______. Multiple choice question. investment required ÷ annual net cash inflow accounting net income from the project ÷ annual net cash inflow annual net cash ÷ required investment investment required ÷ accounting net income from the project

investment required ÷ annual net cash inflow

If the internal rate of return is Blank______. Multiple select question. less than the hurdle rate the project is acceptable greater than the hurdle rate the project should be rejected less than the hurdle rate the project should be rejected greater than the hurdle rate the project is acceptabl

less than the hurdle rate the project should be rejected greater than the hurdle rate the project is acceptabl

The Eye Clinic of Dr. Christensen is investing in some equipment to perform corrective eye surgery. It is expected that the equipment purchase will generate an internal rate of return of 24%. This equipment was chosen over equipment to perform cataract eye surgery. Thus, the internal rate of return of the cataract eye surgery equipment must have been Blank______. Multiple choice question. greater than the internal rate of return of the corrective eye surgery equipment less than the internal rate of return of the corrective eye surgery equipment zero

less than the internal rate of return of the corrective eye surgery equipment zero

The term capital budgeting is used to describe how managers plan significant investments in projects that have Blank______ implications. Multiple choice question. short-term long-term both short-term and long-term

long term

One dollar today is worth Blank______ a dollar a year from now. Multiple choice question. the same as more than less than

more than

Working capital Blank______. Multiple choice question. is the value recaptured after the end of an investment's use often increases when a company takes on a new project is the amount paid for ownership of the investment is the cost savings provided by the capital investment

often increases when a company takes on a new project

The more quickly the cost of an investment can be recovered, the more desirable the investment is the basic premise of the _____________________ method.

payback

Capital budgeting methods that focus on cash flows rather than incremental operating income are Blank______. Multiple select question. payback internal rate of return net present value simple rate of return

payback internal rate of return net present value

The length of time that it takes for a project to recover its initial cost from the net cash inflows that it generates is th

payback period

Little Tots Gym has a required rate of return of 13%. The gym is considering the purchase of $12,500 of new equipment. The internal rate of return on the project has been calculated to be 11%. This project Blank______. Multiple choice question. should be rejected is acceptable

rejected

The cost of capital serves as a Blank______ tool. Multiple choice question. screening preference

screening

The two broad categories into which capital budgeting decisions fall are decisions and decisions

screening preference

The net present value of a project is Blank______. Multiple select question. the difference between the present value of cash inflows and present value of cash outflows for a project the cost of an investment less the present value of the project's salvage value the present value of the project's projected annual tax savings used in determining whether or not a project is an acceptable capital investment

the difference between the present value of cash inflows and present value of cash outflows for a project used in determining whether or not a project is an acceptable capital investment

The net present value of a project is Blank______. Multiple select question. the cost of an investment less the present value of the project's salvage value used in determining whether or not a project is an acceptable capital investment the difference between the present value of cash inflows and present value of cash outflows for a project the present value of the project's projected annual tax savings

used in determining whether or not a project is an acceptable capital investment the difference between the present value of cash inflows and present value of cash outflows for a project

Current assets minus current liabilities is called ______________________ ___________________

working capital

Typical capital budgeting cash outflows include Blank______. Multiple select question. working capital invested salvage value of old equipment cost reductions initial equipment investments installation costs

working capital invested initial equipment investments installation costs