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Exam 25: Capital Budgeting and Managerial Decisions

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Question 71

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A capital budgeting method that considers how quickly a project recovers costs is known as ______________. An enhancement to this method that considers the time value of money is called ____________.

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Answers m...

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Question 72

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How does the calculation of break-even time (BET)differ from the calculation of payback period (PBP)?

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The calculation of BET adjusts...

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Question 73

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The process of analyzing alternative investments and deciding which assets to acquire or sell is known as:

Identify the five steps involved in managerial decision making.

The rate that yields a net present value of zero for an investment is the:

A company is planning to purchase a machine that will cost $24,000,have a six-year life,and be depreciated over a three-year period with no salvage value.The company expects to sell the machine's output of 3,000 units evenly throughout each year.A projected income statement for each year of the asset's life appears below.What is the payback period for this machine? Sales………………………………………… $90,000 Costs: Manufacturing……………………………… $52,000 Depreciation on machine…………………… 4,000 Selling and administrative expenses……….. 30,000 (86,000) Income before taxes………………………... $ 4,000 Income tax (50%) …………………………... ( 2,000 ) Net income…………………………………. $ 2,000

Capital budgeting decisions are risky because:

A company is considering a new project that will cost $19,000.This project would result in additional annual revenues of $6,000 for the next 5 years.The $19,000 cost is an example of a(n) :

The __________________________ is the rate that yields a net present value of zero for an investment.

In a make or buy decision,management should focus on costs that are constant under the two alternatives.

A company has the choice of either selling 1,000 defective units as scrap or rebuilding them.The company could sell the defective units as they are for $4.00 per unit.Alternatively,it could rebuild them with incremental costs of $1.00 per unit for materials,$2.00 per unit for labor,and $1.50 per unit for overhead,and then sell the rebuilt units for $8.00 each.What should the company do?