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| 1 | |
A _______________ is a long-term project that involves a large expenditure of funds and that provides expected future benefits over a number of years. |
| | A) | balanced scorecard investment |
| | B) | master budget project |
| | C) | capital budget |
| | D) | capital investment |
| | E) | make-or-buy project |
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| 2 | |
Which of the following is NOT a contribution that the accountant makes to the capital budgeting process? |
| | A) | Linkage to master budget (planning) |
| | B) | Linkage to the balanced scorecard (control) |
| | C) | Generation of relevant data for investment analysis purposes (decision-making) |
| | D) | Conducting of post-audits (control) |
| | E) | Financial analysis of alternative investments. |
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| 3 | |
_______________ is a multi-criteria decision technique that can combine qualitative and quantitative factors in the overall evaluation of decision alternatives. |
| | A) | The balanced scorecard (BSC) |
| | B) | The analytic hierarchy process (AHP) |
| | C) | A capital budget |
| | D) | The capital asset pricing model (CAPM) |
| | E) | Discounted cash flow (DCF) |
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| 4 | |
What is the proper procedure for handling working capital commitments in a capital budgeting decision? |
| | A) | Show it as a negative cash flow in the project initiation year. |
| | B) | Show it as a positive cash flow in the project initiation year. |
| | C) | Show it as a negative cash flow in the final year of a project. |
| | D) | Both A and C are correct. |
| | E) | Both B and C are correct. |
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| 5 | |
Cash flows occur at three stages of a capital investment project, in the following sequence: |
| | A) | project consideration, project implementation, project evaluation. |
| | B) | project implementation, project consideration, project termination. |
| | C) | project initiation, project operation, final disposal. |
| | D) | project operation, project evaluation, final disposal. |
| | E) | project reflection, project inception, project operation. |
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| 6 | |
Brent Corporation is considering purchasing a machine for $2,000,000. It is expected that the machine will generate after-tax income of $80,000 per year. The company will use straight-line depreciation for the new machine over the machine's useful life of 10 years; salvage value is estimated as $0. Brent expects to be in the 30% tax bracket. What is the new machine's net present value (NPV) if the company has a minimum rate of return of 10% on all investments? |
| | A) | $140,000 |
| | B) | ($279,400) |
| | C) | ($1,139,700) |
| | D) | ($1,200,000) |
| | E) | ($1,508,400) |
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| 7 | |
Brent Corporation is considering purchasing a machine for $2,000,000. It is expected that the machine will generate after-tax income of $80,000 per year. The company will use straight-line depreciation for the new machine over the machine's useful life of 10 years; salvage value is estimated as $0. Brent expects to be in the 30% tax bracket. What is the estimated internal rate of return (IRR) on this proposed investment? |
| | A) | 0.35% |
| | B) | 6.65% |
| | C) | 1.18% |
| | D) | 8.14% |
| | E) | 7.36% |
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| 8 | |
Brent Corporation is considering purchasing a machine for $2,000,000. It is expected that the machine will generate after-tax income of $80,000 per year. The company will use straight-line depreciation for the new machine over the machine's useful life of 10 years; salvage value is estimated as $0. Brent expects to be in the 30% tax bracket. What is the estimated payback period for the new machine? |
| | A) | 7.14 years |
| | B) | 8.33 years |
| | C) | 9.16 years |
| | D) | 10.00 years |
| | E) | 14.29 years |
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| 9 | |
Brent Corporation is considering purchasing a machine for $2,000,000. It is expected that the machine will generate after-tax income of $80,000 per year. The company will use straight-line depreciation for the new machine over the machine's useful life of 10 years; salvage value is estimated as $0. Brent expects to be in the 30% tax bracket.What is the new machine's book (accounting) rate of return based on average investment? |
| | A) | 6.35% |
| | B) | 7.50% |
| | C) | 8.00% |
| | D) | 10.00% |
| | E) | 12.00% |
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| 10 | |
Results from the net present value (NPV) method and the internal rate of return (IRR) method may differ if projects differ in all the following ways except: |
| | A) | required initial investment. |
| | B) | cash flow pattern. |
| | C) | cost of capital. |
| | D) | length of useful life. |
| | E) | investment strategy. |
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| 11 | |
_______________ is the process of selectively varying a key input variable to determine the range over which a capital budgeting decision is valid. |
| | A) | Sensitivity analysis |
| | B) | Scenario analysis |
| | C) | Monte Carlo simulation |
| | D) | Constrained optimization |
| | E) | Real options analysis |
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| 12 | |
A number of methods can be used to deal with uncertainty in capital budgeting. The method that is associated with the use of Goal Seek in Excel is: |
| | A) | Simulation analysis. |
| | B) | Scenario analysis. |
| | C) | What-If analysis. |
| | D) | Real options. |
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| 13 | |
Which of the following capital budgeting methods ignores the time value of money? |
| | A) | Internal rate of return (IRR) |
| | B) | Present value payback period |
| | C) | Net present value (NPV) |
| | D) | Accounting rate of return (ARR) |
| | E) | None of the above. |
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| 14 | |
A number of methods can be used to deal with uncertainty in capital budgeting. The method that is associated with viewing projects as dynamic in nature is: |
| | A) | Simulation analysis. |
| | B) | Scenario analysis. |
| | C) | What-If analysis. |
| | D) | Real options. |
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| 15 | |
_______________ is a measure of financial performance designed to approximate an entity's economic profit. |
| | A) | IRR (Internal Rate of Return) |
| | B) | Payback period |
| | C) | NPV (Net Present Value) |
| | D) | Accounting rate of return (ARR) |
| | E) | EVA® (Economic Value Added) |
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