28 of 34

Jennings Manufacturing gathered the following flexible budget information:

Percent of normal capacity	80%	100%
Standard direct labor hours	56,000	70,000
Total budgeted variable overhead cost	$104,000	$130,000
Total budgeted fixed overhead cost	$100,000	$100,000

How much is the total budgeted overhead cost at 90% of normal capacity?

	$100,000
	$217,000
	$207,000
	$230,000

Question

29 of 34

The present value of an investment is affected by which of the following?

	The number of time periods (length of the investment)
	The type of investment (annuity versus lump sum)
	The interest rate
	All of the above

Question

30 of 34

A company is evaluating a variety of different capital investment opportunities. Due to limited funds, the company can only choose one project. What would be the best capital budgeting method for this company to use to select a project?

	Net present value method
	Profitability index
	Accounting rate of return method
	Payback method

Question

31 of 34

Gomez Corporation is considering two alternative investment proposals with the following data:

	Proposal X	Proposal Y
Investment	$850,000	$468,000
Useful life	8 years	8 years
Estimated annual net cash inflows for 8 years	$125,000	$78,000
Residual value	$40,000	$ 0
Depreciation method	Straight-line	Straight-line
Required rate of return	14%	10%

How long is the payback period for Proposal X?

	10.90 years
	6.80 years
	21.25 years
	6 years

Question

32 of 34

The formula for calculating the accounting rate of return for a capital asset is

	(average annual operating income + depreciation expense)/amount invested in asset.
	average annual operating income from asset/amount invested in asset.
	(average annual cash inflows - depreciation expense)/(amount invested in asset + residual value of asset).
	average annual net cash inflow from asset/amount invested in asset.

Question

33 of 34

O'Mally Department Stores is considering two possible expansion plans. One proposal involves opening five stores in Indiana at the cost of $1,920,000. Under the other proposal, the company would focus on Kentucky and open six stores at a cost of $2,500,000. The following information is available:

	Indiana proposal	Kentucky proposal
Required investment	$1,920,000	$2,500,000
Estimated life	10 years	10 years
Estimated residual value	$50,000	$80,000
Estimated annual cash inflows over the next 10 years	$400,000	$500,000
Required rate of return	10%	10%

The accounting rate of return for the Kentucky proposal is closest to

	20.00%.
	11.09%.
	10.32%.
	10.00%.

Question

34 of 34

The term ________ is best described as "the length of time required to recover the cost of an investment."

	capital budgeting
	time value of money
	annuity
	payback period