Question 1
Which of the following statements about the payback method of capital
budgeting is correct?
a. Does not consider the time value of money.
b. Will lead to the same decision as other methods of capital budgeting.
c. Considers cash ows after the payback has been reached.
d. Uses discounted cash ow techniques.
Question 2
Afrocado uses a discount rate of 18% in its capital budgeting. Management is
considering an investment in telecommunications equipment with a useful life
of 8 years. Excluding the salvage value of the equipment, the net present value
of the investment in the equipment is – $260,340. How large would the salvage
value of the telecommunications equipment have to be to make the investment
in the telecommunications equipment 0nancially attractive?
Answer: 978,721
Question 3
Afrocado Limited manufactures bottles of avoured mineral water.
Depreciation of the bottling equipment is charged as a manufacturing expense
and is calculated using the straight line method of depreciation. Assuming that
the cost object is the product (bottles of mineral water), the depreciation costs
can be classi0ed as:
a.direct labor
b.Variable
c.Fixed
d.direct material
e.Joint
Question 4
The management of Afrocado is investigating the purchase of a new satellite
routing system with a useful life of 9 years. The company uses a discount rate
of 9% in its capital budgeting. The net present value of the investment,
excluding its intangible bene0ts, is -$717,002. How large would the additional
cash ow per year from the intangible bene0ts have to be to make the
investment in the automated equipment 0nancially attractive?
Answer:
119, 440
Bene0ts 1→9
119, 440
6.003 717,002
Question 5
Afrocado produces two intermediate products, A and B, from a common input.
Intermediate product A can be further processed into end product X.
Intermediate product B can be further processed into end product Y. The
