Suppose an investment has cash inflows of R dollars at the end of each year for two years. The present value of these cash inflows using a 12% discount rate will be:

16. C Medium	An increase in the discount rate: a. will increase the present value of future cash flows. b. will have no effect on net present value. c. will reduce the present value of future cash flows. d. is one method of compensating for reduced risk.
17. B Medium	Suppose an investment has cash inflows of R dollars at the end of each year for two years. The present value of these cash inflows using a 12% discount rate will be: a. greater than under a 10% discount rate. b. less than under a 10% discount rate. c. equal to that under a 10% discount rate. d. sometimes greater than under a 10% discount rate and   sometimes less; it depends on R.
18. B Medium CPA adapted	The net present value and internal rate of return methods of capital budgeting are superior to the payback method in that they: a. are easier to implement. b. consider the time value of money. c. require less input. d. reflect the effects of depreciation and income taxes.

19. C Medium CPA adapted	How are the following used in the calculation of the net present value of a proposed project? Ignore income tax considerations.     Depreciation expense   Salvage value a.        Include             Include b.        Include             Exclude c.        Exclude             Include d.        Exclude             Exclude
20. D Medium CPA adapted	The net present value method takes into account:        Cash Flow Over     Time Value        Life of Project    of Money a.          No               Yes b.          No               No c.          Yes              No d.          Yes              Yes
21. C Easy CMA adapted	The net present value method of capital budgeting assumes that cash flows are reinvested at: a. the internal rate of return on the project. b. the rate of return on the company's debt. c. the discount rate used in the analysis. d. a zero rate of return.
22. C Medium	Some investment projects require that a company expand its working capital to service the greater volume of business that will be generated. Under the net present value method, the investment of working capital should be treated as: a. an initial cash outflow for which no discounting is    necessary. b. a future cash inflow for which discounting is necessary. c. both an initial cash outflow for which no discounting is    necessary and a future cash inflow for which discounting is      necessary. d. irrelevant to the net present value analysis.
23. A Medium CMA adapted	(Ignore income taxes in this problem.) How is depreciation handled by the following capital budgeting techniques?           Internal          Simple        Rate of Return   Rate of Return   Payback a.       Excluded          Included      Excluded b.       Included          Excluded      Included c.       Excluded          Excluded      Included d.       Included          Included      Excluded

24. B Easy CPA adapted	Which of the following capital budgeting techniques consider(s) cash flow over the entire life of the project?        Internal rate of return     Payback a.               Yes                Yes b.               Yes                No c.                No                Yes d.                No                No
25. C Medium CMA adapted	A weakness of the internal rate of return method for screening investment projects is that it: a. does not consider the time value of money. b. implicitly assumes that the company is able to reinvest cash     flows from the project at the company's discount rate. c. implicitly assumes that the company is able to reinvest cash     flows from the project at the internal rate of return. d. does not take into account all of the cash flows from a      project.
26. A Medium	If the net present value of a project is zero based on a discount rate of sixteen percent, then the time-adjusted rate of return: a. is equal to sixteen percent. b. is less than sixteen percent. c. is greater than sixteen percent. d. cannot be determined from the information given.
27. A Easy CMA adapted	The payback method measures: a. how quickly investment dollars may be recovered. b. the cash flow from an investment. c. the economic life of an investment. d. the profitability of an investment.
28. B Medium	An investment project that requires a present investment of $210,000 will have cash inflows of "R" dollars each year for the next five years. The project will terminate in five years. Consider the following statements (ignore income tax considerations):   I. If "R" is less than $42,000, the payback period exceeds           the life of the project.  II. If "R" is greater than $42,000, the payback period exceeds          the life of the project. III. If "R" equals $42,000, the payback period equals the life          of the project. Which statement(s) is (are) true? a. Only I and II. b. Only I and III. c. Only II and III. d. I, II, and III.

29. A Easy CMA adapted	Which one of the following statements about the payback method of capital budgeting is correct? a. The payback method does not consider the time value of    money. b. The payback method considers cash flows after the payback     has been reached. c. The payback method uses discounted cash flow techniques. d. The payback method will lead to the same decision as other    methods of capital budgeting.
30. B Medium	The evaluation of an investment having uneven cash flows using the payback method: a. cannot be done. b. can be done only by matching cash inflows and investment outflows on a year-by-year basis. c. will product essentially the same results as those obtained    through the use of discounted cash flow techniques. d. requires the use of a sophisticated calculator or computer    software.
31. B Medium CMA adapted	The capital budgeting method that divides a project's annual incremental net income by the initial investment is the: a. internal rate of return method. b. the simple ( or accounting) rate of return method. c. the payback method. d. the net present value method.
32. B Medium CMA adapted	When determining a net present value in an inflationary environment, adjustments should be made to: a. decrease the discount rate only. b. increase the estimated cash flows and increase the discount    rate. c. increase the estimated cash flows only. d. increase the estimated cash flows and decrease the discount    rate.
33. B Hard CPA adapted	(Ignore income taxes in this problem.) Kipling Company has invested in a project that has an eight-year life. It is expected that the annual cash inflow from the project will be $20,000. Assuming that the project has a internal rate of return of 12%, how much was the initial investment in the project? a. $160,000 b. $99,360 c. $80,800 d. $64,640

34. D Medium	(Ignore income taxes in this problem.) White Company's required rate of return on capital budgeting projects is 12%. The company is considering an investment opportunity which would yield a cash flow of $10,000 in five years. What is the most that the company should be willing to invest in this project? a. $36,050. b. $2,774. c. $17,637. d. $5,670.
35. C Easy	(Ignore income taxes in this problem.) In order to receive $12,000 at the end of three years and $10,000 at the end of five years, how much must be invested now if you can earn 14% rate of return? a. $12,978. b. $8,100. c. $13,290. d. $32,054.
36. C Hard	(Ignore income taxes in this problem.) Sue Falls is the president of Sports, Inc. She is considering buying a new machine that would cost $14,125. Sue has determined that the new machine promises a internal rate of return of 12%, but Sue has misplaced the paper which tells the annual cost savings promised by the new machine. She does remember that the machine has a projected life of 10 years. Based on these data, the annual cost savings are: a. it is impossible to determine from the data given. b. $1,412.50. c. $2,500.00. d. $1,695.00.
37. C Hard	(Ignore income taxes in this problem.) The following information is available on a new piece of equipment:    Cost of the equipment ......  $21,720    Annual cash inflows ........  $5,000    Internal rate of return  ...    16%    Required rate of return  ...    10% The life of the equipment is approximately: a. 6 years. b. 4.3 years. c. 8 years. d. it is impossible to determine from the data given.

38. C Hard CPA adapted	(Ignore income taxes in this problem.) A planned factory expansion project has an estimated initial cost of $800,000. Using a discount rate of 20%, the present value of future cost savings from the expansion is $843,000. To yield exactly a 20% internal rate of return, the actual investment cost cannot exceed the $800,000 estimate by more than: a. $160,000. b. $20,000. c. $43,000. d. $1,075.
39. D Hard CPA adapted	(Ignore income taxes in this problem.) Hilltop Company invested $100,000 in a two-year project. The cash flow was $40,000 for the first year. Assuming that the internal rate of return was exactly 12%, what was the cash flow for the second year of the project? a. $51,247. b. $60,000. c. $64,284. d. $80,652.
40. C Hard	(Ignore income taxes in this problem.) Joe Flubup is the president of Flubup, Inc. He is considering buying a new machine that would cost $25,470. Joe has determined that the new machine promises a internal rate of return of 14%, but Joe has misplaced the paper which tells the annual cost savings promised by the new machine. He does remember that the machine has a projected life of 12 years. Based on these data, the annual cost savings are: a. impossible to determine from the data given. b. $2,122.50. c. $4,500.00. d. $4,650.00.
41. B Hard	(Ignore income taxes in this problem.) The Baker Company purchased a piece of equipment with the following expected results:        Useful life ................... 7 years     Yearly net cash inflow ........ $50,000     Salvage value .................   -0-     Internal rate of return .......   20%     Discount rate .................   16% The initial cost of the equipment was: a. $300,100. b. $180,250 c. $190,600. d. Cannot be determined from the information given.

42. B Hard	(Ignore income taxes in this problem.) Highpoint, Inc., is considering investing in automated equipment with a ten-year useful life. Managers at Highpoint have estimated the cash flows associated with the tangible costs and benefits of automation, but have been unable to estimate the cash flows associated with the intangible benefits. Using the company's 10% discount rate, the net present value of the cash flows associated with just the tangible costs and benefits is a negative $184,350. How large would the annual net cash inflows from the intangible benefits have to be to make this a financially acceptable investment? a. $18,435. b. $30,000. c. $35,000. d. $37,236.
43. B Hard	(Ignore income taxes in this problem.) Given the following data:     Present investment required ..  $12,000     Net present value ............  $   430     Annual cost savings ..........  $   ?     Discount rate ................    12%     Life of the project .......... 10 years Based on the data given, the annual cost savings would be: a. $1,630.00. b. $2,200.00. c. $2,123.89. d. $2,553.89.
44. A Medium	(Ignore income taxes in this problem.) The following data pertain to an investment in equipment:     Investment in the project ..........  $10,000     Net annual cash inflows ............    2,400     Working capital required ...........    5,000     Salvage value of the equipment .....    1,000     Life of the project ................  8 years At the completion of the project, the working capital will be released for use elsewhere. Compute the net present value of the project, using a discount rate of 10%: a. $606. b. $8,271. c. ($1,729). d. $1,729.