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Characteristics of capital budgeting include

Characteristics of capital budgeting include: (Check all that apply.)

- large cash investments

- long-term planning

- high risk investments

All of the following are outflows of cash over the life of an asset except:

--- initial investment

<input name="mcinput_4edd9627-d6fa-5b62-9a85-06fac61349e0_scoring" type="radio" />

maintenance expense

Reason:

Cash outflows over the life of the asset include operating costs and repairs and maintenance.

<input name="mcinput_4edd9627-d6fa-5b62-9a85-06fac61349e0_scoring" type="radio" />

repairs expense

Reason:

Cash outflows over the life of the asset include operating costs and repairs and maintenance.

<input name="mcinput_4edd9627-d6fa-5b62-9a85-06fac61349e0_scoring" type="radio" />

operating costs

Reason:

Cash outflows over the life of the asset include operating costs and repairs and maintenance.

The capital budgeting evaluation method that considers only the recovery of the initial investment and ignores additional cash flows and the timing of the cash flows is the:

internal rate of return.

Reason:

payback period.

<input checked="checked" name="mcinput_aba1ba3d-a0d4-59cb-93b1-e4a5dfcad72b_scoring" type="radio" />

payback period.

<input name="mcinput_aba1ba3d-a0d4-59cb-93b1-e4a5dfcad72b_scoring" type="radio" />

net present value.

Reason:

payback period.

<input name="mcinput_aba1ba3d-a0d4-59cb-93b1-e4a5dfcad72b_scoring" type="radio" />

accounting rate of return.

Reason:

payback period.

The formula to calculate the accounting rate of return is:

annual income before tax/annual average investment

Reason:

annual after-tax net income/annual average investment

<input name="mcinput_919fb274-4127-5d21-b9dd-9b53db30775f_scoring" type="radio" />

annual after-tax net income/initial investment

Reason:

annual after-tax net income/annual average investment

<input name="mcinput_919fb274-4127-5d21-b9dd-9b53db30775f_scoring" type="radio" />

annual income before tax/initial investment

Reason:

annual after-tax net income/annual average investment

<input checked="checked" name="mcinput_919fb274-4127-5d21-b9dd-9b53db30775f_scoring" type="radio" />

annual after-tax net income/annual average investment

Capital budgeting is used to evaluate the purchase of:

Capital budgeting is used to evaluate the purchase of:

-- A machine,

When comparing investment opportunities with approximately the same cost and risk level, choose the investment with the:

--

lowest net present value

Reason:

highest positive net present value

<input name="mcinput_b6f9d08e-fdd4-5ba5-aa18-471c582133bf_scoring" type="radio" />

lowest negative net present value

Reason:

highest positive net present value

<input name="mcinput_b6f9d08e-fdd4-5ba5-aa18-471c582133bf_scoring" type="radio" />

highest net present value

Reason:

If the highest NPV is negative, the project should still be rejected.

<input checked="checked" name="mcinput_b6f9d08e-fdd4-5ba5-aa18-471c582133bf_scoring" type="radio" />

highest positive net present value

 

The rate of return that results in a net present value of $0 is the:

  • Internal rate of return _

An investment's <input maxlength="50" name="fitbScoring_4486f5ff-6314-4a00-9011-6435d8cfa303" type="TEXT" value="payback" />Blank 1Blank 1 payback, Correct Unavailable period is the expected time period to recover the initial investment amount.

 

--

Of the four capital budgeting methods, which two reflect the time value of money?

:

Internal rate of return (IRR) and net present value

If a company uses straight-line depreciation, the annual average investment can be calculated as: (Check all that apply.)

(beginning book value + salvage value)/2.

sum of individual years' average book values/number of years of planned investment

(beginning book value + ending book value)/2.

 

The process of evaluating and planning for long-term investments is called <input maxlength="50" name="fitbScoring_5cb2f001-110a-4981-8e4f-e80585034096" type="TEXT" value="capital" />Blank 1Blank 1 capital, Correct Unavailable budgeting.

The capital investment evaluation method that compares the present value of the net cash flows to the initial amount invested is the:

- Net present value,,

An evaluation of a project's actual results versus its projected results is called a(n):

postaudit

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preaudit

Reason:

An evaluation of a project's actual results versus its projected results is called a postaudit.

<input name="mcinput_b19c0962-fb5a-5715-8412-2d6a0ba9ba7a_scoring" type="radio" />

cash flow report

Reason:

An evaluation of a project's actual results versus its projected results is called a postaudit.

<input name="mcinput_b19c0962-fb5a-5715-8412-2d6a0ba9ba7a_scoring" type="radio" />

evaluation report

Reason:

An evaluation of a project's actual results versus its projected results is called a postaudit.

 

Which of the following are correct statements about the internal rate of return? (Check all that apply.)

The higher the IRR, the better.

IRR reflects the time value of money.

A company is considering several investment opportunities. The investments have been evaluated using payback period and break-even time. Only one project will be chosen and time value of money is important. The company should choose the project which the:

-

A company is considering several investment opportunities. The investments have been evaluated using payback period and break-even time. Only one project will be chosen and time value of money is important. The company should choose the project which the:

shortest break-even time

 

longest payback period

Reason:

 

The company should choose the product with the shortest break-even time.

 

longest break-even time

Reason:

 

The company should choose the product with the shortest break-even time.

 

shortest payback period

Reason:

 

The company should choose the product with the shortest break-even time.

The advantages of a postaudit include (select all that apply):

managers will be more careful in proposals they submit

<input checked="checked" name="mcmsinput_50347e9d-95d8-5605-bdfb-b331410b4ed8_scoring" type="checkbox" />

poor investments can be identified early

<input name="mcmsinput_50347e9d-95d8-5605-bdfb-b331410b4ed8_scoring" type="checkbox" />

a different method can be used to support the capital budgeting decision

Reason:

The same method should be used in the postaudit as was used to make the decision.

<input name="mcmsinput_50347e9d-95d8-5605-bdfb-b331410b4ed8_scoring" type="checkbox" />

the postaudit uses estimated cash flows

Reason:

The postaudit uses actual cash flows and revised future cash flows.

 

A capital investment evaluation method that measures the expected time for the present value of the net cash flows to equal the initial cost of the investment is the

break-even time

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repayment time

Reason:

This is referred to as break-even time.

<input name="mcinput_1dcdb169-0b05-5df1-abaa-b40b42c38c7c_scoring" type="radio" />

profit time

Reason:

This is referred to as break-even time.

<input name="mcinput_1dcdb169-0b05-5df1-abaa-b40b42c38c7c_scoring" type="radio" />

payback period

Reason:

This is referred to as break-even time.