Question Details

CHAPTER 24 PLANNING FOR CAPITAL INVESTMENTS MULTIPLE CHOICE QUESTIONS PART 3



	26.	The capital budget for the year is approved by a company's
a.	board of directors.
b.	capital budgeting committee.
c.	officers.
d.	stockholders.


	27.	All of the following are involved in the capital budgeting evaluation process except a company's
a.	board of directors.
b.	capital budgeting committee.
c.	officers.
d.	stockholders.


	28.	Most of the capital budgeting methods use
a.	accrual accounting numbers.
b.	cash flow numbers.
c.	net income.
d.	accrual accounting revenues.


	29.	The first step in the capital budgeting evaluation process is to
a.	request proposals for projects.
b.	screen proposals by a capital budgeting committee.
c.	determine which projects are worthy of funding.
d.	approve the capital budget.


	30.	The capital budgeting decision depends in part on the
a.	availability of funds.
b.	relationships among proposed projects.
c.	risk associated with a particular project.
d.	all of these.


	31.	Capital budgeting is the process
a.	used in sell or process further decisions.
b.	of determining how much capital stock to issue.
c.	of making capital expenditure decisions.
d.	of eliminating unprofitable product lines.


	32.	Net annual cash flow can be estimated by
a.	deducting credit sales from net income.
b.	adding depreciation expense to net income.
c.	deducting credit purchases from net income.
d.	adding advertising expense to net income.


33.	Which of the following is not a typical cash flow related to equipment purchase and replacement decisions?
a.	Increased operating costs
b.	Overhaul of equipment
c.	Salvage value of equipment when project is complete
d.	Depreciation expense


	34.	Capital expenditure proposals are initially screened by the
a.	board of directors.
b.	executive committee.
c.	capital budgeting committee.
d.	stockholders.


	35.	Capital budgeting decisions depend in part on all of the following except the
a.	relationships among proposed projects.
b.	profitability of the company.
c.	company- basic decision making approach.
d.	risks associated with a particular project.


	36.	The corporate capital budget authorization process consists of how many steps?
a.	4
b.	3
c.	2
d.	1


	37.	Which of the following is not a capital budgeting decision?
a.	Constructing new studios
b.	Replacing old equipment
c.	Scrapping obsolete inventory
d.	Remodeling an office building


	38.	Which of the following is a disadvantage of the cash payback technique?
a.	It is difficult to calculate
b.	It relies on the time value of money
c.	It can only be calculated when there are equal annual net cash flows
d.	It ignores the expected profitability of a project


	39.	The payback period is often compared to an asset-
a.	estimated useful life.
b.	warranty period.
c.	net present value.
d.	internal rate of return.


	40.	Which of the following ignores the time value of money?
a.	Internal rate of return
b.	Profitability index
c.	Net present value
d.	Cash payback


	41.	Brady Corp. is considering the purchase of a piece of equipment that costs $20,000. Projected net annual cash flows over the project- life are:
Year	Net Annual Cash Flow
	1	$  3,000
	2	8,000
	3	15,000
	4	9,000
The cash payback period is
a.	2.29 years.
b.	2.60 years.
c.	2.40 years.
d.	2.31 years.


	42.	Bradshaw Inc. is contemplating a capital investment of $88,000. The cash flows over the project- four years are:
			Expected Annual	Expected Annual
		Year	Cash Inflows	Cash Outflows
		1	$30,000	$12,000
		2	45,000	20,000
		3	60,000	25,000
		4	50,000	30,000
The cash payback period is
a.	3.59 years.
b.	3.50 years.
c.	2.37 years.
d.	3.20 years.


	43.	Jordan Company is considering the purchase of a machine with the following data:
Initial cost	$150,000
One-time training cost	12,000
Annual maintenance costs	15,000
Annual cost savings	75,000
Salvage value	20,000
The cash payback period is
a.	2.70 years.
b.	2.50 years.
c.	2.37 years.
d.	2.17 years.


	44.	If project A has a lower payback period than project B, this may indicate that project A may have a 
a.	lower NPV and be less profitable.
b.	higher NPV and be less profitable.
c.	higher NPV and be more profitable.
d.	lower NPV and be more profitable.


	45.	Which of the following does not consider a company- required rate of return?
a.	Net present value
b.	Internal rate of return
c.	Annual rate of return
d.	Cash payback