BUS108 Quiz 9

Correct answer. Your answer is correct. Given a present value factor of 3.7907, assuming a 10% discount rate, the present value of an annuity of $20,000 payment each year for five years is Entry field with correct answer $26,380 $75,814 $379,070 $5,276

$75,814

Correct answer. Your answer is correct. Morrow Company has invested in equipment that cost $70,000. The equipment has a 7-year life and no salvage value. Morrow uses straight-line depreciation. The equipment has a payback period of 4 years. The accounting rate of return is closest to Entry field with correct answer 3.5% 10.7% 25% 39%

10.7%

Chow Company is considering the purchase of a piece of equipment costing $142,500. The equipment has an eight-year useful life and will generate $30,000 in annual cash flows. The company has a 10% required rate of return and uses the straight-line depreciation method. The internal rate of return on this equipment is closest to Entry field with correct answer 13%. 43%. 22%. 10%.

13%

Assuming an 8% discount rate, the present value of a $10,000 payment received in five years is Entry field with correct answer $6,806. $10,000. $6,768. $3,194.

6806

Braxton Manufacturing is considering the purchase of new computerized equipment. The machine costs $75,000 and would generate $22,000 in annual cost savings over its 5-year life. At the end of 5 years, the equipment would have a $5,000 salvage value. Braxton's required rate of return is 12%. The machine's net present value is Entry field with correct answer $695 $79,306 $4,305 $7,143

7,143

Mauldin Welding Shop is considering the purchase of new high-tech welding equipment. If the equipment is purchased, Mauldin will have to incur $2,000 to install the equipment and pay a technician to adjust the computer settings. In determining the cash flows associated with the new equipment, the $2,000 payment will be Entry field with correct answer A cash outflow Not relevant A cash inflow An opportunity cost

A cash outflow

he return generated by an investment based on its operating income is the Entry field with correct answer Discounted rate of return. Accounting rate of return. Payback period. Internal rate of return.

Accounting rate of return.

When a new piece of equipment is purchased, which of the following would be considered a cash inflow? Entry field with correct answer Cost savings Salvage value of the new equipment Additional revenue generated All of these answer choices are correct.

All of these answer choices are correct.

A stream of equal cash flows received at set time intervals is called a (an) Entry field with correct answer Annuity Present cash flow Discounted cash flow None of these answer choices are correct

Annuity

Which of the following is a reason capital budget requests should be reviewed and approved by executive management? Entry field with correct answer Neither because these investments are made for the long-term nor because these investments will likely have a significant impact on the company's future financial health These investments are made for the long-term These investments will likely have a significant impact on the company's future financial health Both because these investments are made for the long-term and because these investments will likely have a significant impact on the company's future financial health

Both because these investments are made for the long-term and because these investments will likely have a significant impact on the company's future financial health

apital budgeting differs from cash budgeting in that Entry field with correct answer Cash budgeting focuses on short-term results while capital budgeting focuses on five, ten, or even twenty years in the future. Cash budgeting focuses on the balance sheet while capital budgeting focuses on the income statement. Cash budget does not contain cash outflows for capital assets while capital budgeting does. All of these answer choices are correct.

Cash budgeting focuses on short-term results while capital budgeting focuses on five, ten, or even twenty years in the future.

While most accounting decisions focus on income, most capital budgeting decisions focus on Entry field with correct answer Need Cash flows Expenses Costs

Cash flows

Which of the following is not a step in the net present value approach to capital budgeting? Entry field with correct answer Calculate the net present value of the project Determine the appropriate discount rate Identify the amount and timing of each cash flow Compare the discount rate to the hurdle rate

Compare the discount rate to the hurdle rate

Capital budgeting decisions involve all of the following except Entry field with correct answer Outflows of cash at one or more times Inflows of cash at one or more times Consideration of depreciation expense A review and approval process

Consideration of depreciation expense

The process of determining how much an amount of money to be received in the future is worth today is called Entry field with correct answer Present value Hurdling Discounting None of these answer choices are correct

Discounting

The actual return earned on a project is called the Entry field with correct answer Internal rate of return Net future value Payback amount None of these answer choices are correct

Internal rate of return

Which of the following is an advantage of the payback period? Entry field with correct answer It is a simple technique. Accounting records are generally not based on cash flow, so the information for the calculation is readily available. Since depreciation is not included in the calculation, the result is not distorted. None of these answer choices are correct.

It is a simple technique.

The goal of the screening decision process is to Entry field with correct answer Narrow the list of capital proposals to those expected to bring the desired level of return. Select the project with the best level of return. Arrange for the completion of the proposed project. None of these answer choices are correct.

Narrow the list of capital proposals to those expected to bring the desired level of return.

Correct answer. Your answer is correct. Which of the following uses interest expense in its computations? Entry field with correct answer Net present value Internal rate of return Both net present value and internal rate of return Neither net present value nor internal rate of return

Neither net present value nor internal rate of return

Which of the following is the formula for the accounting rate of return? Entry field with correct answer Net initial investment Annual cash flow Project revenue - project operating expenses Initial investment - salvage of old asset Present value of future cash flows Net initial investment None of these answer choices are correct

Project revenue - project operating expenses Initial investment - salvage of old asset

Once you have determined the net present value of a project, if the net present value is less than zero, the project should be Entry field with correct answer Before making a decision, recalculate the present value using another discount rate Accepted Rejected Before making a decision, calculate the future value of the project

Rejected

Any return a company receives over and above the original investment is referred to as Entry field with correct answer Return on investment. Return of investment. Return of contribution. None of these answer choices are correct.

Return on investment.

The amount of time, in years, that it takes the company to provide investors a return on the capital. The amount of time, in years, that it takes the company to earn enough profit generated from the capital asset to pay for it. The amount of time, in years, that it takes for an investment to return the original amount of invested capital. The amount of time, in years, that it takes for an investment to return the original amount of the capital plus the required internal rate of return.

The amount of time, in years, that it takes for an investment to return the original amount of invested capital.

You cannot easily use the annuity table method to calculate Entry field with correct answer You can use the annuity table method for all of these answer choices Analyzing the purchase of a capital asset The return on investment The internal rate of return with uneven cash flows

The internal rate of return with uneven cash flows

When a project's internal rate of return equals the discount rate, Entry field with correct answer A manager has probably manipulated the analysis The net present value is zero The discount rate is equal to the industry average None of these answer choices are correct

The net present value is zero

Hess Company is analyzing a capital budgeting decision involving the purchase of a used delivery truck for $22,000. The company's discount rate is 12%. Managers have calculated an 11% internal rate of return on the truck. In this analysis, which of the following statements will be true? Entry field with correct answer The net present value of the truck is greater than zero. The present value of the future cash flows generated by the truck is less than $22,000. If the truck's annual maintenance costs increase, its internal rate of return will increase. The truck is an acceptable investment under the internal rate of return method.

The present value of the future cash flows generated by the truck is less than $22,000.

Which of the following is a limitation of the payback period? Entry field with correct answer This method is complex to calculate. The cash flows after the payback period needed for the calculation are difficult to determine. This method ignores the time value of money. The discount rate used in the calculation may change before the end of the payback.

This method ignores the time value of money.

A dollar received today is Entry field with correct answer Worth less than a dollar received in the future discounted at 12% interest. Worth more than a dollar received at any time in the future. Worth less than a dollar received in the future if the current interest rate is lower than the anticipated future interest rate. None of these answer choices are correct.

Worth more than a dollar received at any time in the future.