1) Which of the following involves significant financial investments in projects to develop new products, expand production capacity, or remodel current production facilities? A) capital budgeting

B) working capital

C) master budgeting

D) project-cost budgeting

Answer: A

Diff: 1

Terms: capital budgeting

Objective: 1

AACSB: Reflective thinking

2) The two factors capital budgeting emphasizes are:

A) qualitative and nonfinancial

B) quantitative and nonfinancial

C) quantitative and financial

D) qualitative and financial

Answer: C

Diff: 1

Terms: capital budgeting

Objective: 2

AACSB: Reflective thinking

3) The stage of the capital budgeting process in which a firm obtains funding for the project is the: A) make decisions by choosing among alternatives stage.

B) make predictions stage.

C) obtain information stage.

D) implement the decision, evaluate performance, and learn stage.

Answer: D

Diff: 1

Terms: net present value (NPV) method

Objective: 2

AACSB: Reflective thinking

4) Discounted cash flow methods for capital budgeting focus on: A) cash inflows

B) operating income

C) cash outflows

D) Both A and C are correct.

Answer: D

Diff: 2

Terms: discounted cash flow (DCF) methods

Objective: 2

AACSB: Reflective thinking

5) Assume your goal in life is to retire with three million dollars. How much would you need to save at the end of each year if interest rates average 5% and you have a 25-year work life? A) $ 49,110

B) $ 55,596

C) $ 62,858

D) $67,508

Answer: C

Explanation: C) Look up annuity factor in the table or use function on a calculator or computer. S (47.727) = $3,000,000

S = $62,857.50

Diff: 3

Terms: net present value (NPV) method

Objective: 2

AACSB: Analytical skills

6) The definition of an annuity is:

A) similar to the definition of a life insurance policy

B) a series of equal cash flows at intervals

C) an investment product whose funds are invested in the stock market D) Both A and B are correct.

Answer: B

Diff: 2

Terms: net present value (NPV) method

Objective: 2

AACSB: Reflective thinking

7) Upper Darby Park Department is considering a new capital investment. The following information is available on the investment. The cost of the machine will be $300,000. The annual cost savings if the new machine is acquired will be $80,000. The machine will have a 5-year life, at which time the terminal disposal value is expected to be $40,000. Upper Darby Park Department is assuming no tax consequences. If Upper Darby Park Department has a required rate of return of 10%, which of the following is closest to the present value of the project? A) $3,264

B) $24,836

C) $28,120

D) $300,000

Answer: C

Explanation: C) ($80,000 × 3.791) + ($40,000 × .621) - $300,000 = $28,120 Diff: 3

Terms: net present value (NPV) method

Objective: 2

AACSB: Analytical skills

8) Shirt Company wants to purchase a new cutting machine for its sewing plant. The investment is expected to generate annual cash inflows of $150,000. The required rate of return is 12% and the current machine is expected to last for four years. What is the maximum dollar amount Shirt Company would be willing to spend for the machine, assuming its life is also four years? Income taxes are not considered. A) $263,500

B) $360,300

C) $395,870

D) $455,550

Answer: D

Explanation:

D) X = $150,000 × PV Ann 4 (12%) = $150,000 × 3.037

X= $455,550

Diff: 3

Terms: net present value (NPV) method

Objective: 2

AACSB: Analytical skills

9) The Zeron Corporation recently purchased a new machine for its factory operations at a cost of $921,250. The investment is expected to generate $250,000 in annual cash flows for a period of six years. The required rate of return is 14%. The old machine has a remaining life of six years. The new machine is expected to...