1) Present value factors
The present value of an annuity of $1 at 8% has a factor for 3 periods of 2.577097; for 5
periods at 8% the factor is 3.992710 . For 10% at 5 periods the factor is 3.790787. For
12% at 5 periods the factor is 3.604776 .
Denver Company is considering purchasing a capital investment that is expected to
provide annual cash inflows of $10,000 per year for 3 years. Is the present value of
these cash flows higher at a required rate of return of 8% or 10%? Answer the question
by calculating the present values at both discount rates.
2) Harker Company manufactures DVD players and other similar electronic products.
Indicate whether the cost is a product cost or period (selling, general, and
administrative) cost AND whether its cost behavior is fixed, variable, or mixed by
placing X’s in the appropriate boxes. As an example, commissions paid to sales staff
would be classified as a period cost and variable.
Depreciation on factory building and equipment
3) Indicate whether each of the following statements is true or false.
1>Budgets establish standards by which performance is evaluated
2>In preparing a budget, information flows occur only from the top down
3>Employees often find that budgets are constraining and limiting
4>Participative budgeting means that a company’s budget should be prepared by
lower-level employees
5>The attitudes and actions of upper-level management have little impact on the
effectiveness of a company’s budget
4) Indicate which of the budgets and pro forma financial statements the given item
appears on by placing X’s in the appropriate column or columns.
Budgeted ending inventory
5) Indicate whether each of the following statements about financial statement analysis
is true or false.
1>Values for the inventory turnover ratio vary widely among different industries
2>Generally, a lower inventory turnover indicates that merchandise is being handled
more efficiently
3>Having too much inventory can hurt a company’s profitability because of excess
costs
4>Having too little inventory can hurt a company’s profitability because of lost sales
5>Average number of days to sell inventory is the number of times, on average, that
inventory is replaced during the year
6) Tokyo Corporation is considering two projects, A and B, and it has gathered the
following estimates for the projects:
What is the net present value for project A? Is it an acceptable investment?
7) Indicate which of the budgets and pro forma financial statements the given item
appears on by placing X’s in the appropriate column or columns.
Budgeted sales commissions expense.
8) Present value factors
The present value of an annuity of $1 at 8% has a factor for 3 periods of 2.577097; for 5
periods at 8% the factor is 3.992710 . For 10% at 5 periods the factor is 3.790787. For
12% at 5 periods the factor is 3.604776 .
Denver Company is considering purchase of equipment that costs $60,000 and is
expected to offer annual cash inflows of $17,000. Denver Company’s required rate of
return is 10%. Estimate the internal rate of return. Is the investment acceptable based on
internal rate of return?