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3 | Cause Company is planning to invest in a machine with a useful life of five years and no salvage value. The machine is expected to produce cash flow from operations of £20,000 in each of the five years. Cause's required rate of return is 10%. The maximum price that the company would pay for the machine would be
(Learning Objective 3 Ch 10) |
| A) | £32,220. |
| B) | £62,100. |
| C) | £75,820. |
| D) | £122,100. |
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4 | The next 3 questions are based on the following information:
(Ignore income taxes in this problem.) Allen College has a telephone system that is in poor condition. The system can be either overhauled or replaced with a new system. The following data have been gathered concerning these two alternatives: Ad MCQs Ch10Q4 (63.0K)Ad MCQs Ch10Q4
Allen College uses a 12% discount rate and the total cost approach to capital budgeting analysis. Both alternatives are expected to have a useful life of eight years.
The net present value of the overhaul alternative is
Refer To: [Allen College]
(Learning Objective 4 Ch 10) |
| A) | £(108,000). |
| B) | £(228,232). |
| C) | £(232,272). |
| D) | £(238,232). |
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5 | The net present value of the new system alternative is
(Learning Objective 4 Ch 10) |
| A) | £(233,300). |
| B) | £(283,300). |
| C) | £(263,100). |
| D) | £(273,100). |
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6 | The new system is a better alternative financially than the overhaul of the old system
(Learning Objective 5 Ch 10) |
| A) | True |
| B) | False |
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7 | If investment A has a payback period of 3 years and investment B has a payback period of 4 years, then :
(Learning Objective 6 Ch 10) |
| A) | A is more profitable than B. |
| B) | A is less profitable than B. |
| C) | A and B are equally profitable. |
| D) | the relative profitability of A and B cannot be determined using only the payback periods. |
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8 | One criticism of the payback method is that it ignores cash flows that occur after the payback point has been reached
(Learning Objective 6 Ch 10) |
| A) | True |
| B) | False |
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9 | The simple rate of return focuses on accounting net operating income rather than on cash flows
(Learning Objective 7 Ch 10) |
| A) | True |
| B) | False |
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10 | The calculation of the net present value of an investment project requires that the depreciation tax shield be included at:
(Learning Objective 8 Ch 10) |
| A) | the amount of the depreciation with no adjustment for taxes. |
| B) | the amount of the depreciation times one minus the tax rate. |
| C) | the amount of the depreciation times the tax rate. |
| D) | zero, since depreciation is not relevant to the calculation of net present value. |
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11 | What is the expected value of the probability distribution for the following product: Ad MCQs Ch10Q11 (26.0K)Ad MCQs Ch10Q11
(Learning Objective 9 Ch 10) |
| A) | £600 |
| B) | £700. |
| C) | £800. |
| D) | £900. |