# 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compound interest is computed on principal and on any interest that has not been paid or withdrawn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when the computation of interest includes both principal and any interest earned that has not been paid or withdrawn the calculation involves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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