FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 10: Decentralization

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 31

True/False

Review LaterAdd Note

Review Later

One of the strengths of the simple rate of return method is that it uses data about cash flows rather than accounting net income.

A) True
B) False

Correct Answer

verified

Show Answer

Question 32

True/False

Review LaterAdd Note

Review Later

The cost of capital is the average rate of return a company must pay on its short-term bank borrowings.

A) True
B) False

Correct Answer

verified

Show Answer

Question 33

True/False

Review LaterAdd Note

The present value of a given sum to be received in five years will be exactly twice as great as the present value of an equal sum to be received in ten years.

The payback method measures:

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?

Denny Corporation is considering replacing a technologically obsolete machine with a new state-of-the-art numerically controlled machine.The new machine would cost $450,000 and would have a ten-year useful life.Unfortunately,the new machine would have no salvage value.The new machine would cost $20,000 per year to operate and maintain,but would save $100,000 per year in labour and other costs.The old machine can be sold now for scrap for $50,000.The simple rate of return on the new machine is closest to:

The simple rate of return would be closest to:

Buy-Rite Pharmacy has purchased a small auto for delivering prescriptions.The auto was purchased for $9,000 and will have a 6-year useful life and a $3,000 salvage value.Delivering prescriptions (which the pharmacy has never done before) should increase gross revenues by at least $5,000 per year.The cost of these prescriptions to the pharmacy will be about $2,000 per year.The pharmacy depreciates all assets using the straight-line method.The payback period for the auto is:

Projects with shorter payback periods are always more profitable than projects with longer payback periods.

One of the strengths of the simple rate of return method is that it takes into account the time value of money in computing the return on an investment project.

The discount rate used in net present value analysis should normally match or exceed the company's minimum required rate of return.

Bradley Company's required rate of return is 14%.The company has an opportunity to be the exclusive distributor of a very popular consumer item.No new equipment would be needed,but the company would have to use one-fourth of the space in a warehouse it owns.The warehouse cost $200,000 new.The warehouse is currently half-empty and there are no other plans to use the empty space.In addition,the company would have to invest $100,000 in working capital to carry inventories and accounts receivable for the new product line.The company would have the distributorship for only 5 years.The distributorship would generate a $17,000 net annual cash inflow.The working capital would be fully released at the end of the five years to be available for other purposes. Required: What is the net present value of the project at a discount rate of 14%? Should the project be accepted?

The following data pertain to an investment proposal: The working capital would be released for use elsewhere when the project is completed.What is the net present value of the project,using a discount rate of 8%?

In comparing two investment alternatives,the difference between the net present values of the two alternatives obtained using the total cost approach will be the same as the net present value obtained using the incremental cost approach.

In the simple rate of return method,depreciation expense is excluded from the calculation of incremental expenses.

If the incremental cost approach rather than the total cost approach is used to evaluate alternatives,which statement below is true?

Given the following data: Based on the data given,the annual cost savings would be:

The payback period for the investment would be:

The net present value of the alternative of purchasing the new system is:

What would the annual net cash inflows from this project have to be in order to justify investing in remodelling?