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Exam 25: Capital Investment Analysis

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Question 51

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The rate of earnings is 12% and the cash to be received in 2 years is $10,000.Determine the present value amount,using the following partial table of present value of $1 at compound interest: ​ ​

A) $8,930
B) $7,120
C) $7,970
D) $8,260

E) A) and B)
F) C) and D)

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Question 52

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Match each definition that follows with the term (a-f) it defines. -The length of time it will take to recover through cash inflows the dollars of a capital outlay

A) Capital rationing
B) Annuity
C) Capital investment analysis
D) Internal rate of return method
E) Payback period
F) Accounting rate of return

G) B) and E)
H) E) and F)

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Question 53

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The process by which management plans,evaluates,and controls long-term investment decisions involving fixed assets is called capital investment analysis.

The rate of earnings is 6% and the cash to be received in 4 years is $20,000.The present value amount,using the following partial table of present value of $1 at compound interest is

The management of Charlton Corporation is considering the purchase of a new machine costing $380,000.The company's desired rate of return is 6%.The present value factor for an annuity of $1 at interest of 6% for 5 years is 4.212.In addition to the foregoing information,use the following data in determining the acceptability of this investment: ​ The cash payback period for this investment is

Which of the following are present value methods of analyzing capital investment proposals?

In net present value analysis for a proposed capital investment,the expected future net cash flows are reduced to their present values.

Using the tables above,what would be the present value of $8,000 to be received 1 year from today,assuming an earnings rate of 12%?

The anticipated purchase of a fixed asset for $400,000,with a useful life of 5 years and no residual value,is expected to yield total net income of $200,000 for the 5 years.The expected average rate of return on investment is 25.0%.

A qualitative characteristic that may impact upon capital investment analysis is employee morale.

T-Bone 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 $141,000.Should the company invest in this project?

The cash payback method can be used only when net cash inflows are the same for each period.

What is the present value of $8,000 to be received at the end of 6-years if the required rate of return is 15%? Below is a table for the present value of $1 at compound interest. ​ Below is a table for the present value of an annuity of $1 at compound interest.

If in evaluating a proposal by use of the net present value method there is an excess of the present value of future cash inflows over the amount to be invested,the rate of return on the proposal is less than the rate used in the analysis.

An investment of $185,575 is expected to generate returns of $65,000 per year for each of the next 4- years.What is the investment's internal rate of return? Below is a table for the present value of $1 at compound interest. ​ ​ Below is a table for the present value of an annuity of $1 at compound interest. ​

Which of the following provisions of the Internal Revenue Code can be used to reduce the amount of the income tax expense arising from capital investment projects?

The amount of the estimated average income for a proposed investment of $90,000 in a fixed asset,giving effect to depreciation (straight-line method) ,with a useful life of 4 years,no residual value,and an expected total income yield of $25,300,is

The process by which management plans,evaluates,and controls long-term investment decisions involving fixed assets is called

Which of the following is an advantage of the cash payback method?

Match each definition that follows with the term (a-e) it defines. -Recognizes that a dollar today is worth more than a dollar tomorrow