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Exam 15: Capital Investment Analysis

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Question 21

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Which of the following is a qualitative consideration that influences capital investments analysis?

A) Time value of money
B) Internal rate of return
C) Changes in price level
D) Manufacturing flexibility

E) B) and C)
F) All of the above

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Question 22

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By converting dollars to be received in the future into current dollars,the present value methods take into consideration that money:

A) has an international rate of exchange.
B) is the language of business.
C) is the measure of assets,liabilities,and stockholders' equity on financial statements.
D) has a time value.

E) A) and C)
F) All of the above

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Question 23

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Proposals L and K each cost $500,000,have 6-year lives,and have expected total cash flows of $750,000.Proposal L is expected to provide equal annual net cash flows of $125,000,while the net cash flows for Proposal K are as follows:

Finer Company is considering the acquisition of a machine that costs $150,000.The machine is expected to have a useful life of 6 years,a negligible residual value,an annual cash flow of $30,000,and annual operating income of $35,000.What is the estimated cash payback period for the machine?

In capital rationing,alternative proposals are initially screened by establishing minimum standards using the cash payback and the average rate of return methods.

The internal rate of return method is used to analyze a $831,500 capital investment proposal with annual net cash flows of $250,000 for each of the six years of its useful life.

Average rate of return equals estimated average annual income divided by average investment.

When evaluating a proposal by use of the net present value method,if there is an excess of the present value of future cash inflows over the amount to be invested,the rate of return on the proposal is less than the rate used in the analysis.

A series of equal cash flows at fixed intervals is termed as a(n) :

The process by which management allocates available investment funds among competing investment proposals is called:

If a proposed expenditure of $80,000 for a fixed asset with a 4-year life has an annual expected net cash flow and net income of $32,000 and $12,000,respectively,the cash payback period is 2.5 years.

A $350,000 capital investment proposal has an estimated life of four years and no residual value.The estimated net cash flows are as follows:

When evaluating a proposal by use of the net present value method,if there is an excess of the present value of future cash inflows over the amount to be invested,the rate of return on the proposal exceeds the rate used in the analysis.

In capital rationing,alternative proposals that survive initial screening and further analysis using present value methods are normally evaluated in terms of:

Which of the following is a present value method of analyzing capital investment proposals?

Periods experiencing increase in price levels are known as periods of:

The internal rate of return method of analyzing capital investment proposals uses the present value concept to compute the rate of return expected from the proposals.

The cash payback period for this investment is:

A qualitative characteristic that influences capital investment analysis is manufacturing productivity.

A present value index can be used to rank competing capital investment proposals when the net present value method is used.