## 26 terms

### The process by which management plans, evaluates, and controls long-term investment decisions involving fixed assets is called capital investment analysis

True

### The process by which management plans, evaluates, and controls long-term investment decisions involving fixed assets is called cost-volume-profit analysis

False

### Average rate of return equals average investment divided by estimated average annual income

False

### Average rate of return equals estimated average annual income divided by average investment

True

### The excess of the cash flowing in from revenues over the cash flowing out for expenses is termed net cash flow

True

### The excess of the cash flowing in from revenues over the cash flowing out for expenses is termed net discounted cash flow

False

### Methods that ignore present value in capital investment analysis include the cash payback method

True

### Methods that ignore present value in capital investment analysis include the average rate of return method

True

### Methods that ignore present value in capital investment analysis include the internal rate of return method

False

### Methods that ignore present value in capital investment analysis include the net present value method

False

### The cash payback method of capital investment analysis is one of the methods referred to as a present value method

False

### The anticipated purchase of a fixed asset for $400,000, with a useful life of 5 years and no residual value, is expected to yield total net income of $300,000 for the 5 years. The expected average rate of return is 30%

True

### The anticipated purchase of a fixed asset for $400,000, with a useful life of 5 years and no residual value, is expected to yield total net income of $300,000 for the 5 years. The expected average rate of return is 37.5%

False

### If a proposed expenditure of $70,000 for a fixed asset with a 4-year life has an annual expected net cash flow and net income of $32,000 and $12,000, respectively, the cash payback period is 2.5 years

False

### If a proposed expenditure of $80,000 for a fixed asset with a 4-year life has an annual expected net cash flow and net income of $32,000 and $12,000, respectively, the cash payback period is 4 years

False

### In net present value analysis for a proposed capital investment, the expected future net cash flows are reduced to their present values

True

### If in evaluating a proposal by use of the net present value method there is a deficiency of the present value of future cash inflows over the amount to be invested, the proposal should be rejected

True

### If in evaluating a proposal by use of the net present value method there is a deficiency of the present value of future cash inflows over the amount to be invested, the proposal should be accepted

False

### A present value index can be used to rank competing capital investment proposals when the net present value method is used

True

### A qualitative characteristic that may impact upon capital investment analysis is manufacturing flexibility

True

### A qualitative characteristic that may impact upon capital investment analysis is employee morale

True

### A qualitative characteristic that may impact upon capital investment analysis is manufacturing productivity

True

### A qualitative characteristic that may impact upon capital investment analysis is manufacturing control

True

### A capital expenditures budget summarizes the decisions made for the acquisition of fixed assets for several future years

True

### Capital rationing is the process by which management decides how to divide the capital budget among the various departments or divisions in the company

False