b
The process of evaluating an organization's investment in long-term assets is calleda. Activity-based evaluation.b. Capital budgeting.c. Investment control.d. None of these answer choices are correct.
a
Capital budgeting differs from cash budgeting in thata. Cash budgeting focuses on short-term results while capital budgeting focuses on five, ten, or even twenty years in the future.b. Cash budgeting focuses on the balance sheet while capital budgeting focuses on the income statement.c. Cash budget does not contain cash outflows for capital assets while capital budgeting does.d. All of these answer choices are correct.
c
A capital asset isa. A variable cost.b. An item on the income statement.c. A long-term asset.d. None of these answer choices are correct.
d
Which of the following capital assets is not a depreciable asset?a. Buildingb. Equipmentc. Automobilesd. Land
c
The minimum required rate of return is often referred to as thea. Activity rate.b. Benchmark rate.c. Hurdle rate.d. Project rate.
d
In which of the following decisions do managers determine which projects will actually receive funds by rank-ordering them based on selected criteria?a. Capitalb. Hurdlec. Screeningd. Preference
d
In a preference decision, which of the following criteria might be used to rank-order the projects?a. Rate of returnb. Return on investmentc. Expected opportunities in new market niched. All of these answer choices are correct
b
While most accounting decisions focus on income, most capital budgeting decisions focus ona. Costsb. Cash flowsc. Expensesd. Need
b
Why is the original purchase price of an old machine that is being replaced never included in capital budgeting decisions?a. It is an opportunity cost, and thus not relevantb. No future cash flows are associated with its purchasec. It will affect future costsd. None of these answer choices are correct
b
Which of the following items is not included in the decision to purchase a new capital asset to replace an old one?a. Sales taxb. Depreciation on the new machinec. Scrap value of the old machined. Installation cost of the new machine
b
Mauldin Welding Shop is considering the purchase of new high-tech welding equipment. If the equipment is purchased, Mauldin can avoid the cost of updating the old equipment estimated to be $3,000. In determining the cash flows associated with the new equipment, the cost of updating the old equipment will bea. A cash outflow b. A cash inflowc. Not relevantd. A sunk cost
a
Mauldin Welding Shop is considering the purchase of new high-tech welding equipment. If the equipment is purchased, Mauldin will incur an additional $8,000 in annual depreciation expense for the next five years. In determining the cash flows associated with the new equipment, the $8,000 of annual depreciation expense will bea. Ignored in the cash flow analysisb. A sunk costc. A cash outflowd. A cash inflow
a
In making a capital budgeting decision, one needs to compare cash flows in terms of their amounts and when they occur. One way to do so is to determine thea. Present valueb. Opportunity costsc. Future valued. Average cash outflows
c
The process of determining how much an amount of money to be received in the future is worth today is calleda. Present valueb. Hurdlingc. Discountingd. None of these answer choices are correct
a
The interest rate used in present value calculations is called the a. Discount rateb. Hurdle ratec. Compound rated. None of these answer choices are correct
d
To determine the present value of any future amount, you need to knowa. The future amount to be receivedb. The interest ratec. When the future amount will be receivedd. All of these answer choices are correct
d
To calculate the present value of any future amount, you can use which of the following tables?a. Present value of an annuityb. Future value of $1 received in n periodsc. Future value of an annuityd. Present value of $1 received in n periods
b
In looking at the "Present Value of $1 Received in n Periods" the rows representa. Different interest ratesb. Number of periods in the futurec. Discount factord. None of these answer choices are correct
c
When the interest from year one is built into the principal balance, the interest is referred to asa. Differential interestb. Discounted interestc. Compound interestd. None of these answer choices are correct
c
Compounding interest more frequently than annually changes thea. Number of periodsb. The discount ratec. Both the number of periods and the discount rate.d. Neither the number of periods nor the discount rate
a
The relationship between the discount rate and the present value isa. Inverseb. Proportionatec. Constantd. Sporadic
a
A stream of equal cash flows received at set time intervals is called a (an)a. Annuityb. Present cash flowc. Discounted cash flowd. None of these answer choices are correct
b
To calculate the present value of an annuity, multiplya. The principal by the discounted interest rateb. The amount to be received each year by the present value factorc. The principal amount by the present value factord. The amount to be received each year by the discounted interest rate
b
A dollar received today isa. Worth less than a dollar received in the future discounted at 12% interest.b. Worth more than a dollar received at any time in the future.c. Worth less than a dollar received in the future if the current interest rate is lower than the anticipated future interest rate.d. None of these answer choices are correct.
a
The actual return earned on a project is called thea. Internal rate of returnb. Net future valuec. Payback amountd. None of these answer choices are correct
b
When a project's internal rate of return equals the discount rate,a. A manager has probably manipulated the analysisb. The net present value is zeroc. The discount rate is equal to the industry averaged. None of these answer choices are correct
d
Which of the following is not an assumption of the internal rate of return model?a. The amount and timing of all cash flows is known exactlyb. All cash flows occur at the end of the yearc. Cash inflows from the project are reinvested in another project earning a return equal to the internal rate of returnd. All of these answer choices are assumptions of the internal rate of return model.
b
The payback period is defined asa. The amount of time, in years, that it takes the company to earn enough profit generated from the capital asset to pay for it.b. The amount of time, in years, that it takes for an investment to return the original amount of invested capital.c. The amount of time, in years, that it takes the company to provide investors a return on the capital.d. 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.
b
Which of the following is a limitation of the payback period?a. The cash flows after the payback period needed for the calculation are difficult to determine.b. This method ignores the time value of money.c. The discount rate used in the calculation may change before the end of the payback.d. This method is complex to calculate.
a
The accounting rate of return differs from other methods in that ita. Does not focus on cash flows.b. The calculation is complex.c. It ignores the time value of money.d. None of these answer choices are correct.