Question :
121. Assume in analyzing alternative proposals that Proposal F has a : 1251744
121. Assume in analyzing alternative proposals that Proposal F has a useful life of six years and Proposal J has a useful life of nine years. What is one widely used method that makes the proposals comparable?
A. Ignore the fact that Proposal F has a useful life of six years and treat it as if it has a useful life of nine years.
B. Adjust the life of Proposal J to a time period that is equal to that of Proposal F by estimating a residual value at the end of year six.
C. Ignore the useful lives of six and nine years and find an average (7 1/2 years).
D. Ignore the useful lives of six and nine years and compute the average rate of return.
122. Periods in time that experience increasing price levels are known as periods of:
A. inflation
B. recession
C. depression
D. deflation
123. Which of the following is not considered as a complicating factor in capital investment decisions?
A. Income Tax
B. Lease versus Capital Investment
C. Equal Proposal Lives
D. Qualitative Considerations
124. Which of the following would not be considered a good managerial tool in making a decision for determining a capital investment?
A. Further evaluate assets that are dissimilar in nature or have different useful lives
B. Using only quantitative measures to purchase an asset
C. Analyzing the lease vs purchase option.
D. Consider income tax ramifications.
125. All of the following are factors that may complicate capital investment analysis except:
A. the leasing alternative
B. changes in price levels
C. sunk cost
D. the federal income tax
126. The process by which management allocates available investment funds among competing investment proposals is called:
A. investment capital
B. investment rationing
C. cost-volume-profit analysis
D. capital rationing
127. In capital rationing, an initial screening of alternative proposals is usually performed by establishing minimum standards. Which of the following evaluation method(s) are often used?
A. Cash payback method and average rate of return method
B. Average rate of return method and net present value method
C. Net present value method and cash payback method
D. Internal rate of return and net present value methods
128. In capital rationing, alternative proposals that survive initial and secondary screening are normally evaluated in terms of:
A. present value
B. non-financial factors
C. maximum cost
D. net cash flow
129. Capital rationing uses the following measures to determine the funding of projects except
A. Ranks the proposals with the available funds.
B. Determines whether the project should be funded by using operating cash or the issuance of bonds.
C. Establish minimum standards by applying the cash payback and the average rate of return.
D. Qualitative factors are considered.
130. Capital rationing uses the following measures to determine the funding of projects except
A. Ranks the proposals with the available funds.
B. Determines whether the project should be funded by using operating cash or the issuance of bonds.
C. Establish minimum standards by applying the cash payback and the average rate of return.
D. Qualitative factors are considered.
131. A company is contemplating investing in a new piece of manufacturing machinery. The amount to be invested is $150,000. The present value of the future cash flows is $145,000. Should they invest in this project?
A. yes, because net present value is +$5,000
B. yes, because net present value is -$5,000
C. no, because net present value is +$5,000
D. no, because net present value is -$5,000
132. A company is contemplating investing in a new piece of manufacturing machinery. The amount to be invested is $150,000. The present value of the future cash flows generated by the project is $145,000. Should they invest in this project?
A. yes, because the rate of return on the project exceeds the desired rate of return used to calculate the present value of the future cash flows.
B. no, because the rate of return on the project is less than the desired rate of return used to calculate the present value of the future cash flows.
C. no, because net present value is +$5,000
D. yes, because the rate of return on the project is equal to the desired rate of return used to calculate the present value of the future cash flows.
133. A company is contemplating investing in a new piece of manufacturing machinery. The amount to be invested is $170,000. The present value of the future cash flows is $185,000. The company’s desired rate of return used in the present value calculations was 10%. Which of the following statements is true?
A. The project should not be accepted because the net present value is negative.
B. The internal rate of return on the project is less than 10%.
C. The internal rate of return on the project is more than 10%.
D. The internal rate of return on the project is equal to 10%.
134. A company is contemplating investing in a new piece of manufacturing machinery. The amount to be invested is $100,000. The present value of the future cash flows at the company’s desired rate of return is $105,000. The IRR on the project is 12%. Which of the following statements is true?
A. The project should not be accepted because the net present value is negative.
B. The desired rate of return used to calculate the present value of the future cash flows is less than 12%.
C. The desired rate of return used to calculate the present value of the future cash flows is more than 12%.
D. The desired rate of return used to calculate the present value of the future cash flows is equal to 12%.
135. A company is contemplating investing in a new piece of manufacturing machinery. The amount to be invested is $100,000. The present value of the future cash flows at the company’s desired rate of return is $100,000. The IRR on the project is 12%. Which of the following statements is true?
A. The project should not be accepted because the net present value is zero.
B. The desired rate of return used to calculate the present value of the future cash flows is less than 12%.
C. The desired rate of return used to calculate the present value of the future cash flows is more than 12%.
D. The desired rate of return used to calculate the present value of the future cash flows is equal to 12%.
