Question :
21) In selecting capital projects, organizations choose
A) the alternative that : 1186182
21) In selecting capital projects, organizations choose
A) the alternative that matches the RRR.
B) the alternative that has revenues that exceed its costs.
C) the alternative that has the highest revenues.
D) the alternative that has the longest time horizon, but also exceeds the RRR.
E) the alternative that provides benefits that exceed predicted costs by the greatest amount.
22) The first step in the capital budgeting decision process model is to
A) establish assumptions common for each potential capital investment.
B) obtain appropriate sources of financing for investments.
C) identify capital expenditures relevant to accomplishing strategic goals.
D) manage the control of non-quantitative factors.
E) analyze the present value of future cash inflow and outflow and relevant qualitative factors.
23) In capital budgeting analysis, opportunity considers as a minimum
A) sources of internally generated cash flow.
B) the profit gained from choosing the next best investment.
C) the profit lost from choosing the next best investment.
D) interest foregone on risk-free investments.
E) lost sales during the analysis phase.
24) The time value of money refers to the concept that
A) saving money has value for the business.
B) both time and money are valuable resources to any organization.
C) money invested today will grow.
D) the value of a monetary unit today is worth less than the same unit in the future.
E) the value of a monetary unit today is worth more than the same unit in the future.
25) Net present value is calculated using the
A) internal rate of return.
B) required rate of return.
C) rate of return required by the investment bankers.
D) after tax cost of debt.
E) coupon interest rate on the firm’s debt.
Use the information below to answer the following question(s).
Hawkeye Cleaners has been considering the purchase of an industrial dry-cleaning machine. The existing machine is operable for three more years and will have a zero disposal price. If the machine is disposed of now, it may be sold for $30,000. The new machine will cost $200,000, an additional cash investment in working capital of $60,000 will be required. The machine is expected to last 3 years and has an estimated disposal value at that time of $20,000. The new machine will reduce the average amount of time required to wash clothing and will decrease labour costs. The investment is expected to net $50,000 in additional cash inflows during the year of acquisition and $150,000 each additional year of use. These cash flows will generally occur throughout the year and are recognized at the end of each year. Income taxes are not considered in this problem.
26) What is the net present value (rounded to the nearest thousand) of the investment assuming the required rate of return is 10 percent? Would Hawkeye Cleaners want to purchase the new machine?
A) $112,000; yes
B) $52,000; yes
C) $(52,000); no
D) $(67,000); no
E) $127,000; yes
27) What is the net present value (rounded to the nearest thousand) of the investment assuming the required rate of return is 24 percent? Would Hawkeye Cleaners want to purchase the new machine?
A) $57,000; yes
B) $(57,000); no
C) $(3,000); no
D) $29,000; yes
E) $(13,000); no
28) Shirt Company wants to purchase a new cutting machine for its sewing plant. The investment is expected to generate annual cash inflows of $300,000 recognized at the end of each year. The required rate of return is 12 percent and the new machine is expected to last for 4 years. What is the maximum dollar amount Shirt Company would be willing to spend for the machine?
A) $507,000
B) $720,600
C) $791,740
D) $911,205
E) $957,600
29) When the net present value method is used, only projects with ________ are ________.
A) negative net present value; acceptable
B) negative net future value; not acceptable
C) positive net future value; acceptable
D) positive net present value; acceptable
E) positive net value; not acceptable
30) Which of the following statements about the net present value method is true?
A) Projects with higher net present values are preferred when all other factors are equal.
B) Projects with negative NPV are acceptable, if no positive NPV projects are available.
C) It focuses on operating income.
D) The origination of cash flows is not important in the analysis.
E) Acceptable projects are those with the highest discount rate.
