buck final

The internal rate of return of an investment project is the: A) discount rate that results in a zero net present value for the project B) minimum acceptable rate of return C) weighted average rate of return generated by internal funds D) company's cost of capital

A) discount rate that results in a zero net present value for the project

Suppose a manager is to be measured by residual income. Which of the following will not result in an increase in the residual income figure for this manager, assuming other factors remain constant? A) An increase in sales. B) An increase in the minimum required rate of return. C) A decrease in expenses. D) A decrease in operating assets.

B) An increase in the minimum required rate of return.

Costs which are always relevant in decision making are those costs which are: A) Variable B) Avoidable C) Sunk D) Fixed

B) Avoidable

7. Residual income is a better measure for performance evaluation of an investment center manager than return on investment because: A) the problems associated with measuring the assest base are eliminated. B) desirable investment decisions will not be rejected by divisions that already have a high ROI. C) only the gross book value of assets need to be calculated. D) returns do not increase as assets are depreciated.

B) desirable investment decisions will not be rejected by divisions that already have a high ROI.

The capital budgeting method that recognizes the time value of money by discounting cash flows over the life of the project, using the company's required rate of return as the discount rate is called the: A) simple rate of return method B) the NPV method C) the internal rate of return method D) the payback method

B) the NPV method

1. All other things the same, which of the following would increase residual income? A. Increase in average operating assets. B. Decrease in average operating assets. C. Increase in minimum required return. D. Decrease in net operating income.

B. Decrease in average operating assets.

The discount rate must be specified in advance for which of the following methods? NPV IRR A)Yes Yes B)Yes No C)No No D)No Yes A. Option A B. Option B C. Option C D. Option D

B. Option B

Freestone Company is considering renting Machine Y to replace Machine X. It is expected that Y will waste less direct materials than does X. If Y is rented, X will be sold on the open market. For this decision, which of the following factors is (are) relevant? I. Cost of direct materials used II. Resale value of Machine X A) Only I B) Only II C) Both I and II D) Neither I nor II

C) Both I and II

Consider the following three statements: I. A profit center has control over both cost and revenue. II. An investment center has control over invested funds, but not over costs and revenue. III. A cost center has no control over sales Which statement(s) is/are correct? A) Only I B) Only II C) Only I and III D) Only I and II

C) Only I and III

When there is a production constrain, a company should emphasize the products with: A) the highest unit contribution margins B) the highest contribution margin ratios C) the highest contribution margin per unit of the constrained resource D) the highest contribution margins and contribution margin ratios

C) the highest contribution margin per unit of the constrained resource

If the internal rate of return is used as the discount rate in computing NPV, the NPV will be: A) positive B) negative C) zero D) unknown

C) zero

Managers of cost centers are evaluated according to the profits which their departments are able to generate. True False

False

The book value of a machine, as shown on the balance sheet, is relevant in a decision concerning the replacement of that machine by another machine. True False

False

Future costs that do not differ among the alternatives are not relevant in a decision. True False

True

If by dropping a product a firm can avoid more in fixed costs than it loses in contribution margin, then the firm is better off economically if the product is dropped. True False

True

Preference decisions attempt to determine which of many alternative investment projects would be the best for the company to accept. True False

True

Residual income is superior to return on investment as a means of measuring performance because it encourages managers to make investment decisions that are more consistent with the interests of the company as a whole. True False

True

The internal rate of return exceeds the required rate of return for a project, then the NPV of that project is positive. True False

True

The internal rate of return for a project is the discount rate that makes the NPV of the project equal to zero. True False

True

The performance measures on an individual's scorecard should not be overly influenced by actions taken by others in the company or by events that are outside of the individual's control. True False

True

The use of return on investment as a performance measure may lead managers to make decisions that are not in the best interests of the company as a whole. True False

True

A general rule in relevant cost analysis is: A. variable costs are always relevant. B. fixed costs are always irrelevant. C. differential future costs and revenues are always relevant. D. depreciation is always irrelevant.

C. differential future costs and revenues are always relevant.

2. Turnover is computed by dividing average operating assets into: A) invested capital B) total assets C) net operating income D) sales

D) sales