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Exam 10: Decentralization

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Question 1

Multiple Choice

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The present value of all future operating cash inflows is closest to:

A) $278,700.
B) $348,400.
C) $452,300.
D) $480,000.

E) C) and D)
F) B) and D)

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Question 2

Multiple Choice

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The net present value of project X is:

A) ($11,708) .
B) $2,915.
C) $5,283.
D) $6,317.

E) None of the above
F) A) and B)

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Question 3

Multiple Choice

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Perkins Company is considering several investment proposals,as shown below: In what order do the proposals rank in terms of preference using the profitability index?

The payback method of making capital budgeting decisions gives full consideration to the time value of money.

Which one of the following statements about the payback method of capital budgeting is correct?

Suppose an investment has cash inflows of R dollars at the end of each year for two years.The present value of these cash inflows using a 12% discount rate will be:

A new Xerox copier costing $400,000 has a life of 5 years with no salvage value.The facility will generate the following annual cash flows:

Benz Company is considering the purchase of a machine that costs $100,000 and has a useful life of 18 years with no salvage value.The company's required discount rate is 12%.If the machine's net present value is $5,850,then the annual cash inflows associated with the machine must be (round to the nearest whole dollar) :

An investment project that requires a present investment of $210,000 will have cash inflows of "R" dollars each year for the next five years.The project will terminate in five years.Consider the following statements (ignore income tax considerations) : I) If "R" is less than $42,000,the payback period exceeds the life of the project. II) If "R" is greater than $42,000,the payback period exceeds the life of the project. III) If "R" equals $42,000,the payback period equals the life of the project. Which statement(s) is (are) true?

A major limitation of the payback method is that it cannot be used in situations where future budgeted cash flows are uneven.

Which of the above costs are not relevant to the comparison of the alternatives?

The simple rate of return on the investment is closest to:

The following data pertain to an investment in equipment: At the completion of the project,the working capital will be released for use elsewhere.What is the net present value of the project,using a discount rate of 10%?

The net present value of all cash flows associated with this investment (rounded to the nearest dollar) is:

A post audit of an investment project can provide feedback as to the quality of an entity's capital budgeting process.

The total net present value of the proposed equipment acquisition is closest to:

Which of the statements below is correct about an increase in the discount rate?

The Keego Company is planning a $200,000 equipment investment that has an estimated five-year life with no estimated salvage value.The company has projected the following annual cash flows for the investment. Assuming that the cash inflows occur evenly over each year,the payback period for the investment is:

Jimbob Co.has purchased new equipment at a cost of $200,000.The business wishes to consider in its capital budgeting analysis the impact of the tax shield resulting from this purchase.The capital cost allowance rate for this type of asset is 30% subject to the half year rule in the year of purchase.The applicable annual corporate tax rate is 40% and Jimbob Co.'s cost of capital is 10%. Required: What are the annual tax shield amounts to be used in net present value calculations for the first five years of the life of the equipment? (Round to even dollars)

Screening decisions in capital budgeting involve determining whether a project meets some minimal pre-set standard of acceptance.