The payback period ________.
ANSWER
INCORRECT
·
YOU WERE SURE AND INCORRECT
shows the excess or deficiency of the asset’s present value of net cash inflows over its initial investment cost
·
THE CORRECT ANSWER
highlights risks of investments with longer cash recovery periods
·
measures the average profitability of the asset over its entire life
·
has no additional steps needed for capital rationing decisions
·
I DON'T KNOW YET
The payback period highlights risks of investments with longer cash recovery periods.
The net present value (NPV) shows the excess or deficiency of the asset’s present value of net cash inflows over its initial investment cost.
The internal rate of return (IRR) has no additional steps needed for capital rationing decisions.
The accounting rate of return (ARR) measures the average profitability of the asset over its entire life.
The payback period is ________.
ANSWER
INCORRECT
·
is the rate of return, based on discounted cash flows, that a company can expect to earn by investing in a capital asset
·
is the difference between the present value of the investment’s net cash inflows and the investment’s cost
·
YOU WERE SURE AND INCORRECT
is a capital budgeting method that ignores the time value of money
·
THE CORRECT ANSWER
a capital budgeting method that ignores the time value of money and focuses on the time it takes to recover the company’s cash investment
·
I DON'T KNOW YET
The payback period is a capital budgeting method that ignores the time value of money and focuses on the time it takes to recover the company’s cash investment.
The accounting rate of return (ARR) is a capital budgeting method that ignores the time value of money.
The net present value (NPV) is the difference between the present value of the investment’s net cash inflows and the investment’s cost.
The internal rate of return (IRR) incorporates the time value of money. Recall the internal rate of return (IRR) is the rate of return, based on discounted cash flows, that a company can expect to earn by investing in a capital asset.
Which of the following is NOT a true statement about sustainability and capital investments?
ANSWER
INCORRECT
·
In San Francisco, rooftop solar systems are mandated in all new construction projects.
·
Government-sponsored incentives provide organizations reductions in the initial cost of the investment or periodic cost savings.
·
YOU WERE SURE AND INCORRECT
Government agencies offer more grants and tax breaks to organizations who invest in green technology.
·
THE CORRECT ANSWER
Sustainable capital investments result in more lawsuits, regulatory fines, and cleanup costs to organizations that pursue capital investments in green technology endeavors.
·
I DON'T KNOW YET
Sustainable capital investments result in increases of lawsuits, regulatory fines, and cleanup costs to organizations that pursue capital investments in green technology endeavors is NOT a true statement. Sustainable capital investments should result in a decrease of lawsuits, regulatory fines, and cleanup costs to organizations who invest in green technology endeavors. A manager should factor in the cost savings of capital investments in green technology.
In San Francisco, rooftop solar systems are mandated in all new construction projects.
Government-sponsored incentives provide organizations reductions in the initial cost of the investment or periodic cost savings.
Government agencies offer more grants and tax breaks to organizations who invest in green technology.
Which of the following is NOT a TRUE statement about the payback period?
ANSWER
INCORRECT
·
The payback period ignores all cash inflows occurring after the payback period, including any residual value.
·
YOU WERE SURE AND INCORRECT
The shorter the payback period, the more attractive an asset.
·
The payback period measures how quickly a manager may expect to recover their investment dollars.
·
THE CORRECT ANSWER
A major criticism of the payback period is that it focuses only on profit instead of on time.
·
I DON'T KNOW YET
A major criticism of the payback period is that it focuses only on profit instead of on time is NOT a true statement about the payback period. A major criticism of the payback periods is that it focuses on time instead of on profit. The other answers are true statements.
The payback period ignores all cash inflows occurring after the payback period, including any residual value.
The more quickly an investment pays itself back, the less risk there is of an investment becoming unprofitable.
The payback formula only works when net cash inflows are the same each period.
Hill’s Renovation Services may need to purchase a new industrial saw before the next major commercial job for $300,000. The managerial accountant reported the new industrial saw has a useful life of 6 years and a residual value of $30,000. The new industrial saw’s annual depreciation expense is computed using the straight-line depreciation expense calculation. The net cash inflows the managerial accountant expects from the investment include:
|
|
|
|
Hill’s Renovation Services
New Industrial Saw Report
|
|
|
Year
|
Net Cash Inflows
|
|
1
|
$80,000
|
|
2
|
$75,000
|
|
3
|
$100,000
|
|
4
|
$40,000
|
|
5
|
$30,000
|
|
Total cash inflow:
|
$325,000
|
What is the accounting rate of return on the new industrial saw?
ANSWER
INCORRECT
·
THE CORRECT ANSWER
93.33%
·
YOU WERE SURE AND INCORRECT
74.25%
·
98.43%
·
85.65%
·
I DON'T KNOW YET
The accounting rate of return on the new industrial saw is 93.33%. The other answer choices are not correct.
First, compute the annual depreciation expense:
Annual depreciation expense = (Initial cost of asset – Residual value)/ Useful life of asset in years
= ($300,000 - $30,000) / 6
= $270,000 / 6
= $45,000 annual depreciation expense
Next, compute the accounting rate of return (ARR):
ARR = (Average annual net cash flow – Annual depreciation expense) / Initial investment
= ($325,000 - $45,000) / $300,000
= $280,000 / $300,000
= 93.33%
Which of the following capital budgeting methods measures the average profitability of the asset over its life?
ANSWER
INCORRECT
·
THE CORRECT ANSWER
Accounting rate of return (ARR)
·
Internal rate of return (IRR)
·
YOU WERE SURE AND INCORRECT
Net present value (NPV)
·
Payback period
·
I DON'T KNOW YET
The accounting rate of return (ARR) is the capital budgeting method that measures the average profitability of the asset over its entire life. The other answers are not correct.
Ms. Jones won on a state lottery ticket. The attorney informed Ms. Jones that at a 5% discount rate, she could choose to withdraw $100,000 of funds at the end of each year for the next four years.
What is the present value of $100,000 a year for four years? (Hint: Use Table B, Present Value of Annuity Table of $1 to compute your answer).
ANSWER
INCORRECT
·
$364,600
·
YOU WERE SURE AND INCORRECT
$366,400
·
$345,600
·
THE CORRECT ANSWER
$354,600
·
I DON'T KNOW YET
The present value of a $100,000 payout at the end of each year for the next four years is $354,600. The other answers are not correct.
Present value of annuity = $100,000 at 5% for 4 years using Table B Present Value of Annuity of $1
= 3.546 × $100,000 = $354,600
Marla’s Pet Services may need to purchase a new industrial exercise machine for pets. The managerial accountant reported that the initial cost of the new asset is $200,000. The residual value is $35,000, and the useful life is 5 years.
What is the annual depreciation expense using the straight-line depreciation method?
ANSWER
INCORRECT
·
$28,000
·
$45,000
·
YOU WERE SURE AND INCORRECT
$22,000
·
THE CORRECT ANSWER
$33,000
·
I DON'T KNOW YET
The annual depreciation expense using the straight-line depreciation expense method is $33,000. The other answers are not correct.
Annual depreciation expense = (Initial cost of asset – Residual value) / Useful life of asset
= ($200,000 - $35,000) / 5
= $165,000 / 5
= $33,000
Which of the following is a TRUE statement about the payback period?
ANSWER
INCORRECT
·
The longer the payback period, the more attractive the asset.
·
THE CORRECT ANSWER
The payback period measures how quickly a manager may expect to recover their investment dollars.
·
YOU WERE SURE AND INCORRECT
The longer an investment takes to pay itself back, the less risk there is of an investment becoming unprofitable.
·
The payback formula only works when net cash inflows are different each period.
·
I DON'T KNOW YET
The payback period measures how quickly a manager may expect to recover their investment dollars is a TRUE statement about the payback period. The other answers are not correct.
The shorter the payback period, the more attractive an asset.
The more quickly an investment pays itself back, the less risk there is of an investment becoming unprofitable.
The payback formula only works when net cash inflows are the same each period.
The net present value (NPV) ________.
ANSWER
INCORRECT
·
THE CORRECT ANSWER
indicates whether the asset will earn the company’s minimum required rate of return
·
computes a project’s unique rate of return
·
YOU WERE SURE AND INCORRECT
is the only capital budgeting method that uses accrual accounting figures
·
focuses on the time it takes to recover the company’s cash investment
·
I DON'T KNOW YET
The net present value (NPV) indicates whether the asset will earn the company’s minimum required rate of return.
The accounting rate of return (ARR) is the only capital budgeting method that uses accrual accounting figures.
The internal rate of return (IRR) computes a project’s unique rate of return.
The payback period focuses on the time it takes to recover the company’s cash investment.
Snowcap Industries may need to purchase a new snow scraper machine before the winter season for $275,000. The managerial accountant reported that the snow scraper machine has a useful life of 5 years and a residual value of $25,000. The annual depreciation expense of the machine is computed using the straight-line depreciation expense method. The net cash inflows the managerial accountant expects from the investment include:
|
|
|
|
Sandcorp Industries
Snow Scraper Report
|
|
|
Year
|
Net Cash Inflows
|
|
1
|
$50,000
|
|
2
|
$60,000
|
|
3
|
$80,000
|
|
4
|
$40,000
|
|
5
|
$30,000
|
|
Total cash inflow:
|
$260,000
|
What is the accounting rate of return on the snow scraper machine?
ANSWER
INCORRECT
·
75.40%
·
77.50%
·
YOU WERE SURE AND INCORRECT
72.30%
·
THE CORRECT ANSWER
76.36%
·
I DON'T KNOW YET
The accounting rate of return on the snow scraper machine is 76.36%. The other answers are not correct.
First, compute the annual depreciation expense:
Annual depreciation expense = (Initial cost of asset – Residual value)/ Useful life of asset in years
= ($275,000 - $25,000) / 5
= $250,000 / 5 = $50,000
Next, compute the accounting rate of return (ARR):
ARR = (Average annual net cash flow – Annual depreciation expense) / Initial investment
= ($260,000 - $50,000) / $275,000
= $210,000 / $275,000 = 76.36%
In Step 2 of the capital budgeting process ________.
ANSWER
INCORRECT
·
a manager must choose among alternative investments due to limited funds
·
THE CORRECT ANSWER
a manager should determine estimates about the future costs, revenues, and savings of the capital investment
·
YOU WERE SURE AND INCORRECT
a manger eliminates unwanted investments
·
a manager identifies potential investments
·
I DON'T KNOW YET
A manager should determine estimates about the future costs, revenues, and savings of the capital investment in Step 2: Estimate future cash inflows.
A manager must choose among alternative investments due to limited funds in Step 4: Analyze potential investments.
A manger eliminates unwanted investments in Step 3: Analyze potential investments.
A manager identifies potential investments in Step 1: Identify potential capital investment.
The accounting rate of return (ARR) ________.
ANSWER
INCORRECT
·
computes a project’s unique rate of return
·
indicates whether the asset will earn the company’s minimum required rate of return
·
YOU WERE SURE AND INCORRECT
focuses on the time it takes to recover the company’s cash investment
·
THE CORRECT ANSWER
is the only capital budgeting method that uses accrual accounting figures
·
I DON'T KNOW YET
Accounting rate of return (ARR) is the only capital budgeting method that uses accrual accounting figures. The other answers are not correct.
The net present value (NPV) is the difference between the present value of the investment’s net cash inflows and the investment’s cost.
The internal rate of return (IRR) incorporates the time value of money. Recall the internal rate of return (IRR) is the rate of return, based on discounted cash flows, that a company can expect to earn by investing in a capital asset.
The payback period is a capital budgeting method that ignores the time value of money and focuses on the time it takes to recover the company’s cash investment.
Which of the following capital budgeting methods indicates whether the asset will earn the company’s minimum required rate of return?
ANSWER
INCORRECT
·
Payback period
·
THE CORRECT ANSWER
Net present value (NPV)
·
Accounting rate of return (ARR)
·
YOU WERE SURE AND INCORRECT
Internal rate of return (IRR)
·
I DON'T KNOW YET
The net present value (NPV) indicates whether the asset will earn the company’s minimum required rate of return.
The accounting rate of return (ARR) is the only capital budgeting method that uses accrual accounting figures.
The internal rate of return (IRR) computes a project’s unique rate of return.
The payback period focuses on the time it takes to recover the company’s cash investment.
Zazuki’s Minor Baseball Park may need to purchase a new baseball rounding machine. The managerial accountant reported that the initial cost of the baseball rounding machine is $260,000. The residual value of the new machine is $40,000, and the useful life is 5 years.
What is the annual depreciation expense using the straight-line depreciation method?
ANSWER
INCORRECT
·
$22,000
·
$66,000
·
THE CORRECT ANSWER
$44,000
·
YOU WERE SURE AND INCORRECT
$56,000
·
I DON'T KNOW YET
The annual depreciation expense using the straight-line depreciation expense method is $44,000. The other answers are not correct.
Annual depreciation expense = (Initial cost of asset – Residual value) / Useful life of asset
= ($260,000 - $40,000) / 5
= $220,000 / 5
= $44,000
No comments:
Post a Comment