Question 6. 6. Determination of the optimum short-term product mix needs to include an analysis of: (Points: 2) Fully absorbed costs.;Production constraints.;Sales-mix costs.;Revenue forecasts.;Joint manufacturing costs.;Question 7. 7. The capital budgeting method(s) that is (are) most likely to provide consistency between data for capital budgeting and data for subsequent performance evaluation is (are) the: (Points: 2) Payback period.;Discounted cash flow (DCF) methods.;Book (i.e., accounting) rate of return method.;Discounted payback period.;Question 8. 8. Results from the net present value (NPV) method and the internal rate of return (IRR) method may differ between projects if the projects differ in all of the following except: (Points: 2) Required initial investment.;Cash-flow pattern.;Cost of capital (i.e., discount rate).;Length of useful life of the two projects.;Book (accounting) rate of return on the two projects.;Question 9. 9. Which of the following statements regarding the determination of the weighted-average cost of capital is not true? (Points: 2) The capital asset pricing model (CAPM) cannot be used to estimate the cost of debt for a company.;The capital asset pricing model (CAPM) can be used to estimate the cost of equity for a non-public company.;In estimating the cost of debt, the analyst typically estimates the current yield-to-maturity of the debt instruments in the company's capital structure.;Market, not book, values of the components of capital are preferable in terms of determining weights for the weighted-average calculation.;The cost of preferred stock is included in the estimation process.;Question 10. 10. Which of the following statements regarding real options is not true? (Points: 2) Similar to financial options, real options are traded on an open exchange.;Their consideration in capital budgeting analysis is designed to complement conventional DCF models.;They refer to options on real assets (i.e., tangible and intangible property).;They can never reduce NPV of a proposed investment, only increase its NPV.;They represent one way of handling risk and uncertainty in the capital budgeting process.;Question 11. 11. The estimated value of a real option: (Points: 2) Is affected by essentially the same set of factors that affect the value of financial options.;Cannot be incorporated into a conventional DCF analysis of an investment project.;Is affected by the length of the expiration date of the option.;Decreases as the underlying risk of a project increases.;Is inversely related to estimated volatility of returns for a proposed project.;Question 12. 12. Within the context of capital budgeting, a primary goal-congruency problem exists when DCF models are used for decision-making purposes but accrual-based earnings figures are used for subsequent performance evaluation purposes. Which of the following items is not likely useful for addressing this goal-congruency problem? (Points: 2) Monte Carlo simulation.;Use of EVA? as the financial-performance metric.;Separating incentive compensation (i.e., "reward") from budgeted performance.;Conducting post-audits of capital investment decisions.;Question 13. 13. Pique Corporation wants to purchase a new machine for $300,000. Management predicts that the machine can produce sales of $200,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $80,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Pique's combined income tax rate is 40%. Management requires a minimum after-tax rate of return of 10% on all investments.;What is the net present value (NPV) of the investment? (The PV annuity factor for 5 years, 10% is 3.791.) Assume that the cash inflows occur at year-end. (Points: 2) ($270,480).;$63,936.;$109,428.;$154,920.;Question 14. 14. Omaha Plating Corporation is considering purchasing a machine for $1,500,000. The machine is expected to generate a constant after-tax income of $100,000 per year for 15 years. The firm will use straight-line (SL) depreciation for the new machine over 10 years with no residual value.;What is the annual accounting (book) rate of return (rounded to two decimal places) on the initial investment? (Points: 2) 6.67%.;10.00%.;13.33%.;16.67%.;23.33%.;Question 15. 15. Pique Corporation wants to purchase a new machine for $300,000. Management predicts that the machine can produce sales of $200,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $80,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Pique's combined income tax rate is 40%. Management requires a minimum after-tax rate of return of 10% on all investments.;What is the payback period for the new machine (rounded to nearest one-tenth of a year)? (Assume that the cash inflows occur evenly throughout the year). (Points: 2);2.5 years.;2.7 years.;3.1 years.;3.6 years.
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