Question 1 A thorough evaluation of how well a project's actual performance matches the projections made when the project was proposed is called a risk analysis. pre-audit. sensitivity analysis. post-audit. Question 2 Present Value of an Annuity of 1 Periods 8% 9% 10% 1 0.926 0.917 0.909 2 1.783 1.759 1.736 3 2.577 2.531 2.487 A company has a minimum required rate of return of 10%. It is considering investing in a project that costs $50,000 and is expected to generate cash inflows of $25,000 at the end of each year for three years. The profitability index for this project is 1.24. 1.27. .80. 1.00. Question 3 Nance Company is considering buying a machine for $90,000 with an estimated life of ten years and no salvage value. The straight-line method of depreciation will be used. The machine is expected to generate net income of $3,000 each year. The cash payback on this investment is 10 years. 7.5 years. 6 years. 15 years. Question 4 All of the following statements about the internal rate of return method are correct except that it is easy to interpret. can be used only when the cash inflows are equal. is widely used in practice. recognizes the time value of money. All of the following are involved in the capital budgeting evaluation process except a company's capital budgeting committee. officers. stockholders. board of directors. Question 6 A project that cost $80,000 with a useful life of 5 years is being considered. Straight-line depreciation is being used and salvage value is $5,000. The project will generate annual cash flows of $21,375. The annual rate of return is 17%. 16%. 15%. 50.3%. Question 6 A project that cost $80,000 with a useful life of 5 years is being considered. Straight-line depreciation is being used and salvage value is $5,000. The project will generate annual cash flows of $21,375. The annual rate of return is 17%. 16%. 15%. 50.3%. Question 8 To avoid rejecting projects that actually should be accepted, 1. intangible benefits should be ignored. 2. conservative estimates of the intangible benefits' value should be incorporated into the NPV calculation. 3. calculate net present value ignoring intangible benefits and then, if the NPV is negative, estimate whether the intangible benefits are worth at least the amount of the negative NPV. both 2 and 3 are correct. 2 3 1 Question 9 If the internal rate of return exceeds the discount rate, then the net present value of a project is negative. one. zero. positive. Question 10 Mussina Company had an investment which cost $250,000 and had a salvage value at the end of its useful life of zero. If Mussina's expected annual net income is $15,000, the annual rate of return is: 12.0%. 15.0%. 6.0%. 10.2%. Question 11 A post-audit should be performed using a different evaluation technique than that used in making the original decision. the same evaluation technique used in making the original decision. estimated amounts instead of actual figures. an independent CPA. Question 12 The cash payback technique is superior to the net present value method. may be useful as an initial screening device. considers cash flows over the life of a project. cannot be used with uneven cash flows. Question 13 Giraldi Company has identified that the cost of a new computer will be $48,000, but with the use of the new computer, net income will increase by $5,000 a year. If depreciation expense is $3,000 a year, the cash payback period is: 24.0 years. 9.6 years. 16.0 years. 6.0 years. Question 14 Which of the following is not a capital budgeting decision? Scrapping obsolete inventory Remodeling an office building Replacing old equipment Constructing new studios Question 15 If a company's required rate of return is 10% and, in using the net present value method, a project's net present value is zero, this indicates that the project's rate of return is less than the minimum rate required. project earns a rate of return of 10%. project earns a rate of return of 0%. project's rate of return exceeds 10%.

Question 1 A thorough evaluation of how well a project's actual performance matches the projections made when the project was proposed is called a risk analysis. preaudit. sensitivity analysis. postaudit. Question 2 Present Value of an Annuity of 1 Periods 1 2 3 8% 0.926 1.783 2.577 9% 0.917 1.759 2.531 10% 0.909 1.736 2.487 A company has a minimum required rate of return of 10%. It is considering investing in a project that costs $50,000 and is expected to generate cash inflows of $25,000 at the end of each year for three years. The profitability index for this project is 1.24. 1.27. .80. 1.00. Question 3 Nance Company is considering buying a machine for $90,000 with an estimated life of ten years and no salvage value. The straightline method of depreciation will be used. The machine is expected to generate net income of $3,000 each year. The cash payback on this investment is 10 years. 7.5 years. 6 years. 15 years. Question 4 All of the following statements about the internal rate of return method are correct except that it is easy to interpret. can be used only when the cash inflows are equal. is widely used in practice. recognizes the time value of money. All of the following are involved in the capital budgeting evaluation process except a company's capital budgeting committee. officers. stockholders. board of directors. Question 6 A project that cost $80,000 with a useful life of 5 years is being considered. Straightline depreciation is being used and salvage value is $5,000. The project will generate annual cash flows of $21,375. The annual rate of return is 17%. 16%. 15%. 50.3%. Question 6 A project that cost $80,000 with a useful life of 5 years is being considered. Straightline depreciation is being used and salvage value is $5,000. The project will generate annual cash flows of $21,375. The annual rate of return is 17%. 16%. 15%. 50.3%. Question 8 To avoid rejecting projects that actually should be accepted, 1. intangible benefits should be ignored. 2. conservative estimates of the intangible benefits' value should be incorporated into the NPV calculation. 3. calculate net present value ignoring intangible benefits and then, if the NPV is negative, estimate whether the intangible benefits are worth at least the amount of the negative NPV. both 2 and 3 are correct. 2 3 1 Question 9 If the internal rate of return exceeds the discount rate, then the net present value of a project is negative. one. zero. positive. Question 10 Mussina Company had an investment which cost $250,000 and had a salvage value at the end of its useful life of zero. If Mussina's expected annual net income is $15,000, the annual rate of return is: 12.0%. 15.0%. 6.0%. 10.2%. Question 11 A postaudit should be performed using a different evaluation technique than that used in making the original decision. the same evaluation technique used in making the original decision. estimated amounts instead of actual figures. an independent CPA. Question 12 The cash payback technique is superior to the net present value method. may be useful as an initial screening device. considers cash flows over the life of a project. cannot be used with uneven cash flows. Question 13 Giraldi Company has identified that the cost of a new computer will be $48,000, but with the use of the new computer, net income will increase by $5,000 a year. If depreciation expense is $3,000 a year, the cash payback period is: 24.0 years. 9.6 years. 16.0 years. 6.0 years. Question 14 Which of the following is not a capital budgeting decision? Scrapping obsolete inventory Remodeling an office building Replacing old equipment Constructing new studios Question 15 If a company's required rate of return is 10% and, in using the net present value method, a project's net present value is zero, this indicates that the project's rate of return is less than the minimum rate required. project earns a rate of return of 10%. project earns a rate of return of 0%. project's rate of return exceeds 10%