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Question;31. When the present value analysis of a;proposed investment results in an indication that the proposal has a rate of;return greater than the cost of capital, the investment might not be made;because;A. the quantitative analysis indicates that;it should not be made.;B. management's assessment of qualitative;factors overrides the quantitative analysis.;C. the timing of the cash flows of the;investment will not be as assumed in the present value calculation.;D. post-audits of prior investments have;revealed that cash flow estimates were consistently less than actual cash flows;realized.;32. Which of the following is not an;important qualitative factor to consider in the capital budgeting decision?;A. Regulations that mandate investment to;meet safety, environmental, or access requirements.;B. Technological developments within the;industry may require new facilities to maintain customers or market share at;the cost of lower ROI for a period of time.;C. Commitment to a segment of the business;that requires capital investments to achieve or regain competitiveness even;though that segment does not have as great an ROI as others.;D. All of the above are important;qualitative factors to consider.;33. Which of the following is typically not;important when calculating the net present value of a project?;A. Timing of cash flows from the project.;B. Income tax effect of cash flows from the;project.;C. Method of financing the project.;D. Amount of cash flows from the project.;34. Depreciation expense is not a cash flow;item but it will affect the calculation of which cash flow item?;A. Initial investment.;B. Income taxes.;C. Salvage value.;D. Working capital.;35. In order to calculate the net present;value of a proposed investment, it is necessary to know;A. the cash flows expected from the;investment.;B. the net income expected from the investment.;C. the interest rate paid on funds borrowed;to make the investment.;D. the cash dividends paid on the stock;each year.;36. Discounting a future cash inflow at an;8% discount rate will result in a higher present value than discounting it at;a;A. 7% rate.;B. 8% rate.;C. 9% rate.;D. all of the above.;37. If a project promises to generate a;higher rate of return than the firm's cost of capital, accepting the project;will;A. increase ROI.;B. decrease ROI.;C. increase payback.;D. decrease payback.;38. If the net present value of the;investment is $8,510, then;A. the rate of return is less than the cost;of capital.;B. the present value of the cash flows are;more than the investment.;C. the cost of capital is higher than the;internal rate of return.;D. the present value of the cash flows is;$8,510 less than the investment.;39. If the net present value of a proposed;investment is positive;A. the investment not will be made.;B. the cost of capital is higher than the;internal rate of return.;C. the cost of capital is positive.;D. the cost of capital is lower than the;internal rate of return.;40. The present value ratio of a proposed;investment will be;A. less than 1.0 if the net present value;is positive.;B. negative if the proposed investment;meets the cost of capital target.;C. less than 1.0 if the net present value;is negative.;D. greater than 1.0 if the cost of capital;exceeds the internal rate of return.;41. The principal weakness of the payback;method for evaluating proposed investments is that it does not;A. provide a way of ranking projects in;order of desirability.;B. consider cash flows that continue after;the investment has been recovered.;C. result in an easily understood;answer".;D. recognize the time value of money.;42. The accounting rate of return method;for evaluating proposed investments;A. is based on cash receipts and;disbursements related to the investment.;B. uses accounting net income from the;operating budget.;C. does not recognize the time value of;money.;D. is easier to use than the net present;value method.;43. The capital budgeting analytical;technique that calculates the rate of return on the investment based on the;impact of the investment on the financial statements is known as the;A. internal rate of return.;B. accounting rate of return.;C. payback period.;D. net present value.;44. An advantage of the net present value;method for evaluating investment proposals over the internal rate of return;method is that;A. only one set of present value;calculations using a required discount rate is made.;B. the actual rate of return on the project;is calculated.;C. projects can be ranked in order of;profitability using the net present value amount.;D. estimates of future cash flows do not;have to be made.;45. If an asset costs $16,000, has an;expected useful life of 8 years, is expected to have a $2,000 salvage value and;generates net annual cash inflows of $2,000 a year, the cash payback period is;A. 8 years.;B. 7 years.;C. 6 years.;D. 5 years.

Paper#45047 | Written in 18-Jul-2015

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