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| 1 | |
An opportunity cost is: |
| | A) | Income forgone because an opportunity to earn income was not pursued. |
| | B) | Never relevant in decision-making. |
| | C) | A cost that cannot be avoided. |
| | D) | A cost that has been incurred and cannot be reversed by some future action. |
| | E) | Present in every decision-making situation. |
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| 2 | |
Which of the following costs classifications would not be considered relevant in comparing decision alternatives? |
| | A) | Opportunity cost. |
| | B) | Differential cost. |
| | C) | Sunk cost. |
| | D) | Incremental cost. |
| | E) | None of the above. |
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| 3 | |
In considering whether to accept a special order at a price less than the normal selling price of the product, but the additional sales will make use of presently idle capacity, which of the following costs will not be relevant? |
| | A) | Fixed manufacturing overhead that can be avoided. |
| | B) | Direct materials. |
| | C) | Variable overhead. |
| | D) | Depreciation of the manufacturing plant. |
| | E) | Direct labor. |
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| 4 | |
The cost of capital used in the capital budgeting process is primarily a function of: |
| | A) | ROE. |
| | B) | ROI. |
| | C) | The cost of borrowing the funds that will be invested. |
| | D) | The discount rate. |
| | E) | None of the above. |
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| 5 | |
Chuck's investment proposal would be inferior to Edna's proposal if it was expected to have a: |
| | A) | Longer payback period. |
| | B) | Higher accounting rate of return. |
| | C) | Higher internal rate of return. |
| | D) | Higher profitability index. |
| | E) | Larger net present value. |
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| 6 | |
If the net present value of a proposed investment is positive: |
| | A) | The investment will not be made. |
| | B) | The cost of capital is higher that the internal rate of return. |
| | C) | The internal rate of return is lower than the cost of capital. |
| | D) | The cost of capital is lower that the internal rate of return. |
| | E) | The internal rate of return is zero. |
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| 7 | |
If an asset costs $32,000, has an expected useful life of 10 years, is expected to have a $4,000 salvage value, and generates net annual cash inflows of $8,000 a year, the cash payback period is |
| | A) | 10 years. |
| | B) | 8 years. |
| | C) | 6 years. |
| | D) | 4 years. |
| | E) | 2 years. |
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| 8 | |
The type of costs included in a management analysis relating to a capital budgeting decision should be limited to: |
| | A) | Controllable costs. |
| | B) | Standard costs. |
| | C) | Relevant costs. |
| | D) | Committed costs. |
| | E) | Discretionary costs. |
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| 9 | |
A capital budgeting technique that considers the time value of money is the: |
| | A) | Accounting rate of return. |
| | B) | Payback period. |
| | C) | Internal rate of return. |
| | D) | Return on investment. |
| | E) | None of the above. |
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| 10 | |
If the discount rate used to evaluate a capital budgeting project is equal to the project's internal rate of return, the project's: |
| | A) | Payback period is less than the useful life of the project. |
| | B) | Profitability index is negative. |
| | C) | Accounting rate of return is greater than the internal rate of return. |
| | D) | Present value of the cash outflows exceeds the present value of the cash inflows. |
| | E) | Net present value is zero. |
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