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34.
Depreciation expense is not a cash flow item but it will affect the calculation of which
cash flow item?
35.
In order to calculate the net present value of a proposed investment, it is necessary to
know:
36.
Discounting a future cash inflow at an 8% discount rate will result in a higher present
value than discounting it at a:
37.
If a project promises to generate a higher rate of return than the firm's cost of capital,
accepting the project will:
38.
If the net present value of the investment is $8,510, then:
39.
If the net present value of a proposed investment is positive:
40.
The present value ratio of a proposed investment will be:
41.
The principal weakness of the payback method for evaluating proposed investments is
that it does not:
42.
The accounting rate of return method for evaluating proposed investments:
43.
The capital budgeting analytical technique that calculates the rate of return on the
investment based on the impact of the investment on the financial statements is known as
the:
44.
An advantage of the net present value method for evaluating investment proposals over
the internal rate of return method is that:
45.
If an asset costs $16,000, has an expected useful life of 8 years, is expected to have a
$2,000 salvage value and generates net annual cash inflows of $2,000 a year, the cash
payback period is
46.
Which of the following statements is true regarding the payback period?
47.
Boccardi Inc., has invested in new pasta manufacturing equipment at a cost of $48,000.
The equipment has an estimated useful life of eight years. Estimated annual sales and
operating expenses related to the pasta equipment follow:
Annual sales
$88,000
Labor costs
(72,000)
Depreciation of equipment
(6,000)
Operating income
$10,000
Income taxes
(4,000)
Net income
$6,000
The estimated payback of the investment in the pasta equipment is:
48.
Boccardi Inc., has invested in new pasta manufacturing equipment at a cost of $48,000.
The equipment has an estimated useful life of eight years. Estimated annual sales and
operating expenses related to the pasta equipment follow:
Annual sales
$88,000
Labor costs
(72,000)
Depreciation of equipment
(6,000)
Operating income
$10,000
Income taxes
(4,000)
Net income
$6,000
The estimated accounting rate of return is:
49.
In a capital budgeting decision, if a firm uses the net present value method and a 12%
discount rate, what does a negative net present value indicate?
50.
A capital budgeting decision method that considers the time value of money is the
51.
Which of the following is a true statement regarding the internal rate of return in capital
budgeting?
52.
Which of the following is a
true
statement regarding the net present value method in
capital budgeting?
53.
Sometimes when management decisions are reached, the investment project with the
highest NPV or IRR is not selected. This occurs because:
54.
The capital budget provides an overall blueprint to help an organization meet it's:
55.
A simple cost/benefit analysis is
not
appropriate for:
56.
Capital budgeting techniques using present value techniques are useful in helping
management:
57.
The discount rate used to determine the present value of an investment proposal being
analyzed is also known as the:
58.
Which of the following formula elements is
not
used in calculating the accounting rate of
return?
59.
Which of the following statements is
true
about capital investment decisions:
60.
For capital budgeting decisions, the use of present value analysis significantly improves
management decision making, however:
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61.
After the results of a present value analysis has been obtained for a capital investment
opportunity, overriding _______________ should also be considered before a final decision
is made.
Essay Questions
62.
The following production costs are provided for AudioPro Co., a manufacturer of high
quality headphones.
Manufacturing Costs:
Direct Materials
$60
Direct Labor
38
Variable Overhead
22
Fixed Overhead
50
Total
$170
It has been determined that the headphones could be purchased from Integrated Labs at
a cost of $135 plus $8 shipping costs. Considering the offer from Integrated Labs, show
whether AudioPro should make or buy the product.
(a.) Assume 40% of fixed overhead allocated to making headphones relates to a
production manager who would not be retained if the headphones were not produced by
AudioPro.
(b.) How would your analysis change if AudioPro could use capacity resources for
alternative activities that would produce a contribution of $35 per unit?
(c.) What is your understanding of the term outsourcing? Briefly explain.
16-38
63.
Digger Company realizes three products from a single mining process: Products J1, A2,
16-39
and V3. Each product may be sold as is in its raw form or processed further into a more
refined state. The additional processing requires no expanded capacity and production
costs are entirely variable. Sales values and cost information are presented below:
If Processed
Further
Product
Units
Produced
Sales
Value
As Is
Sales
Value
Additional
Costs
J1
14,000
$60,000
$100,000
$22,000
A2
10,000
100,000
108,000
16,000
V3
6,000
58,000
78,000
20,000
(a.) Determine whether Digger Company should sell each product as is or after further
processing.
