Multiple Choice Questions

Which of the following is important when evaluating long-term investments?
  • net present value and internal rate of return
  • a.Investments must earn a reasonable rate of returnb.Employees are able to determine and propose capital equipment for their divisions or departmentsc.Proposals should match long term goals.d.All of the above.
  • it is easy to use
  • It takes into consideration the time value of money
Periods in time that experience increasing price levels are known as periods of:
  • capital rationing
  • manufacturing sunk cost
  • sunk cost
  • inflation
Which of the following is not considered as a complicating factor in capital investment decisions?
  • equal proposal lives
  • average rate of return
  • net present value
  • Depreciation deduction
Which of the following is a method of analyzing capital investment proposals that ignores present value?
  • internal rate of return and net present value
  • average rate of return method
  • internal rate of return
  • average rate of return
In capital rationing, alternative proposals that survive initial and secondary screening are normally evaluated in terms of:
  • internal rate of return
  • non-financial factors
  • Cash payback method and average rate of return method
  • manufacturing sunk cost
The cash payback method is widely used in evaluating investments. The following are reasons why this method is used except:
  • it emphasizes the amount of income earned over the life of the proposal
  • methods that ignore present value
  • average rate of return method
  • The longer the payback, the longer the estimated life of the asset
Which of the following would not be considered a good managerial tool in making a decision for determining a capital investment?
  • using only quantitative measures to purchase an asset
  • present value index
  • internal rate of return and net present value
  • It takes into consideration the time value of money
In capital rationing, an initial screening of alternative proposals is usually performed by establishing minimum standards. Which of the following evaluation method(s) are often used?
  • The longer the payback, the longer the estimated life of the asset
  • non-financial factors
  • using only quantitative measures to purchase an asset
  • Cash payback method and average rate of return method
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?
  • Depreciation deduction
  • present value index
  • equal proposal lives
  • average rate of return
The primary advantages of the average rate of return method are its ease of computation and the fact that:
  • Total present value of net cash flow/Amount to be invested
  • The longer the payback, the longer the estimated life of the asset
  • it emphasizes the amount of income earned over the life of the proposal
  • Amount to be invested/annual net cash flow
A series of equal cash flows at fixed intervals is termed a(n):
  • sunk cost
  • It takes into consideration the time value of money
  • manufacturing sunk cost
  • annuity
An analysis of a proposal by the net present value method indicated that the present value of future cash inflows exceeded the amount to be invested. Which of the following statements best describes the results of this analysis?
  • Cash payback method and average rate of return method
  • Determines whether the project should be funded by using operating cash or the issuance of bonds.
  • The longer the payback, the longer the estimated life of the asset
  • The proposal is desirable and the rate of return expected from the proposal exceeds the minimum rate used for the analysis.
The present value factor for an annuity of $1 is determined using which of the following formulas?
  • Amount to be invested/annual net cash flow
  • it emphasizes the amount of income earned over the life of the proposal
  • capital investment analysis
  • methods that ignore present value
When several alternative investment proposals of the same amount are being considered, the one with the largest net present value is the most desirable. If the alternative proposals involve different amounts of investment, it is useful to prepare a relative ranking of the proposals by using a(n):
  • capital rationing
  • internal rate of return
  • annuity
  • present value index
Assume in analyzing alternative proposals that Proposal F has a useful life of six years and Proposal J has a useful life of nine years. What is one widely used method that makes the proposals comparable?
  • average rate of return method
  • present value index
  • Determines whether the project should be funded by using operating cash or the issuance of bonds.
  • Adjust the life of Proposal J to a time period that is equal to that of Proposal F by estimating a residual value at the end of year six.
The process by which management allocates available investment funds among competing investment proposals is called:
  • capital investment analysis
  • average rate of return method
  • average rate of return
  • capital rationing
The present value index is computed using which of the following formulas?
  • it emphasizes the amount of income earned over the life of the proposal
  • Total present value of net cash flow/Amount to be invested
  • Amount to be invested/annual net cash flow
  • net present value and internal rate of return
Capital rationing uses the following measures to determine the funding of projects except
  • Total present value of net cash flow/Amount to be invested
  • The longer the payback, the longer the estimated life of the asset
  • Cash payback method and average rate of return method
  • Determines whether the project should be funded by using operating cash or the issuance of bonds.
All of the following are factors that may complicate capital investment analysis except:
  • net present value
  • time value of money
  • equal proposal lives
  • sunk cost
Which of the following is an advantage of the cash payback method?
  • It takes into consideration the time value of money
  • it is easy to use
  • net present value
  • equal proposal lives
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Multiple Choice Questions
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