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 series of equal cash flows at fixed intervals is termed an annuity

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