Question : 61) The method that measures the time it will take to : 1196187

 

61)

The method that measures the time it will take to recoup, in the form of cash inflows, the total dollars invested in a project is called 61)

______ A)

the book-value method. B)

payback. C)

the accrued accounting rate of return method. D)

internal rate of return method. E)

the NPV.

62)

The net initial investment for a new mainframe computer is $2,000,000. Annual cash flows are expected to increase by $800,000 per year. The equipment has a 10-year useful life.

What is the payback period? 62)

______ A)

1.75 years B)

4.00 years C)

0.75 years D)

2.50 years E)

2.00 years

63)

Which of the following statements is FALSE? 63)

______ A)

The payback method is easy to understand. B)

Managers prefer projects with longer paybacks rather than shorter paybacks. C)

Managers are less confident about future cash flows than current cash flows. D)

The ideal payback time is zero. E)

The payback method highlights liquidity.

64)

Problems encountered when the payback method is used may include: 64)

______ A)

it neglects the time value of money. B)

it emphasizes short-term projects. C)

it is only useful when future cash flows are certain. D)

it is easy to use. E)

it promotes long-term projects.

65)

Which of the following is FALSE concerning the Payback method? 65)

______ A)

Its major strength is that it that it is easy to use. B)

The payback method highlights liquidity. C)

It uses the accrual accounting rate of return. D)

It does no project cash flows after the recovery of the initial investment. E)

Shorter payback periods give an organization more flexibility.

66)

A company is considering two different purchases from a vendor, for a high-speed photocopier. The regular model costs $4,500 and the deluxe model costs $6,100. The company has projected cash savings of $800 for the first year, and then $850 annually thereafter for the regular model, but the vendor is claiming that the deluxe model is $400 cheaper per year to operate than the regular model. What are the payback periods for the Regular and Deluxe models, respectively? 66)

______ A)

5.29 years; 5.63 years B)

5.29 years; 4.88 years C)

5.35 years; 4.92 years D)

5.08 years; 5.29 years E)

4.88 years; 5.63 years

67)

An accounting measure of income divided by an accounting measure of investment is called 67)

______ A)

accrual accounting rate of return. B)

book-value method. C)

bailout payback. D)

rate of return on assets method. E)

net previous value.

68)

A rental company replaces its heavy drilling machine every four years. They are contemplating acquiring a larger machine, at a cost of $70,000, which is guaranteed to last for seven years. The current machine can be traded-in for a $3,000 down payment on the new machine, and the company expects annual savings in operating costs of $15,000.

What is the AARR for the new machine? 68)

______ A)

20.55% B)

2.86% C)

21.43% D)

7.14% E)

6.85%

69)

Which of the following is TRUE concerning capital budgeting analysis? 69)

______ A)

NPV and IRR do not consider accruals B)

the Payback method and the AARR both consider profitability, and NPV and IRR do not consider accruals C)

NPV and IRR do not consider accruals, and the IRR considers the time value but AARR does not D)

the Payback method and the AARR both consider profitability E)

the IRR considers the time value but AARR does not

70)

For capital-budgeting decisions, the use of the accrual accounting rate of return for evaluating performance is often a stumbling block to the implementation of the 70)

______ A)

Payback method but not for NPV analysis. B)

AARR method but not for Payback. C)

IRR method but not for NPV analysis. D)

for all DCF methods for capital budgeting. E)

none of the above