Question : 71.Cash outflows generated by capital investments include all of the : 1257027

 

 

71.Cash outflows generated by capital investments include all of the following except:   

A. annual depreciation of the capital asset.

 

B. initial investment in the capital asset.

 

C. increase in operating expenses.

 

D. increase in the amount of required working capital

 

 

72.Seth Morrison is considering alternative proposals that involve different amounts of investments. To compare different size investment proposals, it may be helpful for Sarah to prepare a relative ranking of the proposals by using a(n):   

A. present value index.

 

B. net present value.

 

C. internal rate of return.

 

D. none of these answers is correct.

 

 

73.The present value index indicates:   

A. the time it will take to recover the initial cash outflow of an investment.

 

B. the additional cash inflows from operating activities.

 

C. the rate of return per dollar invested in a capital project.

 

D. the ratio of the net present value of an investment to the initial investment.

 

 

74.The length of time required to recover the initial investment in a capital asset is known as the:   

A. the rate of return.

 

B. investment period.

 

C. present value period.

 

D. payback period.

 

 

75.The time value of money concept recognizes that a dollar today is worth more than a dollar tomorrow. Which of the following is not a factor in causing the present value of cash inflows to diminish over time?   

A. Current expenses.

 

B. Earning potential, such as interest.

 

C. Risk of uncollectability.

 

D. Inflation reduces future purchasing power.

 

 

76.The difference between an ordinary annuity and an annuity due is:   

A. an ordinary annuity represents a present value and an annuity due represents a future value.

 

B. an ordinary annuity represents a future value and an annuity due represents a present value.

 

C. an ordinary annuity assumes the cash flows occur at the beginning of the period and an annuity due assumes the cash flows occur at the end of the period.

 

D. an ordinary annuity assumes the cash flows occur at the end of the period and an annuity due assumes the cash flows occur at the beginning of the period.

 

 

77.Butch’s Barbecue thinks that offering delivery will increase their sales. Butch’s is considering whether to purchase a used delivery truck costing $12,000. Additional net income from the delivery service will be $1,400 per year. The truck will last approximately 5 years. What is the unadjusted rate of return based on the average investment?   

A. About 58.3%

 

B. About 11.7%

 

C. About 23.3%

 

D. About 857.1%

 

 

78.Which of the following statements is incorrect?   

A. The further into the future a cash receipt is expected to occur, the lower is its present value.

 

B. The return on investment measures the compensation a company expects to receive from investing in capital assets.

 

C. Most companies use their cost of capital to estimate the minimum return on investment required from capital investments.

 

D. When a company invests in capital assets, it sacrifices future dollars for the opportunity to receive present dollars.

 

 

79.The process by which management evaluates long-term investment decisions involving long term operational assets is called:   

A. capital investment analysis.

 

B. activity based management.

 

C. strategic business analysis.

 

D. fixed cost analysis.

 

 

80.Which of the following statements is correct?   

A. A postaudit should be conducted at the time a capital investment is purchased.

 

B. The postaudit of a capital investment project should be made using the same analytical technique that was used in deciding to make the investment.

 

C. The purpose of postaudits is to improve a company’s cost-volume-profit analysis.

 

D. The postaudit process uses expected cash flows and the company’s cost of capital.