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managerial accounting final (12,13)

interest is the difference between the amount borrowed and the amount repaid
true
compound interest is computed on principal and on any interest that has not been paid or withdrawn
true
which of the following is false
simple interest is generally applicable to long term situations
when the computation of interest includes both principal and any interest earned that has not been paid or withdrawn the calculation involves
compound interest
the process of determining the present value
is referred to as discounting the future amount
the present value of a given amount is based on each of the following except the
date of the original, transaction
the further removed from the present the future value is the smaller its present value
true
the present value of annuity is the value now of a series of future receipts or payments discounted assuming simple interest
false
in computing the present value of an annuity you need to know
the amount of the periodic payments or receipts the number of compounding periods and the discount rate
in computing the present value of an annuity each of the following is needed except the
present value of 1 factors
to compute the present value of a bond both the interest payments and the principal amount must be discounted
true
if the investors required rate of return is greater than the contractual rate for bonds which pay interest semiannually
the bonds will sell at a discount
estimated cash inflows and outflows are the preparred inputs for capital budgeting decisions
true
which of the following is not a cash inflow used as an input in capital budgeting decisions
increased operating costs
the rate of return that management expects to pay on all borrowed and equity funds is the
cost of capital
the preferred inputs for capital budgeting purposes are
estimated cash flows
when the payback period is longer the investment is more attractive to management
false
the cash payback period is computed by dividing the
cost of the investment by the net annual cash inflow
which of the following formulas is used for computing the cash payback period
cost of capital investment/ net annual cash flow
when using the net present value method the proposal is acceptable when the net present value is negative
false
one of the assumptions of the net present value method is that all cash flows can be predicted with certainty
true
net present value is the difference between the
present value of future net cash flows and the capital investment
when applying the net present value method with unequal cash flow
the present value of a single future amount must be applied to each annual cash flow
the rate that will cause the present value of the proposed capital expenditure to equal the present value of the expected annual cash inflows is the
internal rate of return
which of the following is not one of the simplifying assumptions made when applying the net present value method
all cash flows come at the end of each year, all cash flows are immediately reinvested in another project that has a similar return, all cash flows can be predicted with certainty
which of the following is not one of the ways intangible benefits can be included in capital budgeting
ignore intangible benefits altogether
intangible benefits should be ignored in NPV techniques
false
if a project has intangible benefits whose value is hard to estimate the best thing to do is
either include a conservative estimate of their value or ignore their value in your initial net present value calculation but then estimate whether their potential value is worth at least the amount of the net present value deficiency
which of the following is the formula used to calculate the profitability index
present value of net cash flows/ initial investment
an evaluation of investment projects after their completion is called
a post audit
what cash flows are used when conducting a post audit of an investment using the net present value approach
actual cash flows `
he formula used to calculate the internal, rate of return is similar to the formula used to calculate the
cash payback period
all of the following methods use cash inflows except the
annual rate of return method
annual rate of return is computed by dividing
expected annual net income by average investment
cash outflows include sale of old equipment
false
which of the following is not an example of a capital budgeting decision
decision to build a new plant, decision to renovate an existing facility, decision to buy a piece of machinery
what is the order of involvement of the following parties in the capital, budgeting authorization process
plant managers, capital budget committee, officers, board of directors
the process of making capital expenditure decisions in business is known as
capital budgeting
which of following is not a cash outflow used as an input in capital budgeting decisions
salvage value of equipment when project is complete
cash payback method assumes equal net annual cash flows
true
what is a weakness of the cash payback approach
it ignores the time value of money and ignores the useful life of alternative projects
discounted cash flows techniques are generally recognized as the best conceptual approaches to making capital budgeting decisions
true
any project with a positive NPV will have a profitability index above 1
true
which is a true statement regarding using higher discount rate to calculate the net present value of a project
it will make it less likely that the project will be accepted
a positive net present value means that the
projects rate of return exceeds the required rate of return
which of the following is an alternative name for the discount rate
hurdle rate, required rate of return, cutoff rate
a positive net present value indicates that
the rate of return on the investment is greater than the discount rate
when calculating an investments net present value which table is used when the annual cash flows are even or equal
present value of an annuity table
intangible benefits in capital budgeting
might include increased product quality and improved safety
how should intangible benefits be included in the net present value calculation of an investment
at their discounted cash flow amount
the profitability index used to compare alternative projects is computed by dividing the
present value of net cash flows by the initial investment
a post audit of an investment project should be performed
on all significant capital expenditure projects
which of the following is not one of the reasons a post audit of investment projects is important
post audit provide a formal mechanism for deciding if investments should be continued or discounted
post audit evaluations of investment projects are not necessary in well run organizations
false
a project should be accepted if its internal rate of return exceeds
the company’s required rate of return
the internal rate of return factor is computed by dividing the
a capital investment by the net annual cash flow
which of the following is based directly on accrual accounting data
annual rate of return
which of the following is incorrect about the annual rate of return technique
the time value of money is considered

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