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Practice Quiz 14
1.
Suture Corporation's discount rate is 12%. If Suture has a 5year investment
project that has a project profitability index of zero, this means that:
A)
the net present value of the project is equal to zero.
B)
the internal rate of return of the project is equal to the discount rate.
C)
the payback period of the project is equal to the project's useful life.
D)
both A and B above are true.
2.
Amster Corporation has not yet decided on the required rate of return to use in
its capital budgeting. This lack of information will prevent Amster from
calculating a project's:
Payback
Net Present Value
Internal Rate of Return
A)
No
No
No
B)
Yes
Yes
Yes
C)
No
Yes
Yes
D)
No
Yes
No
3.
If income taxes are ignored, how is depreciation used in the following capital
budgeting techniques?
Internal Rate of Return
Net Present Value
A)
Excluded
Excluded
B)
Excluded
Included
C)
Included
Excluded
D)
Included
Included
4.
Zonifugal Corporation needs to purchase a new conveyor system for its
factory. Four different conveyor systems have been proposed. Which
calculation would be the best one for Zonifugal to use to determine which
system to purchase?
A)
payback period
B)
simple rate of return
C)
net present value
D)
project profitability index
5.
When evaluating a project, the portion of the fixed corporate headquarters
expense that would be allocated to the project should be:
1
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included as a cash outflow on an aftertax basis by multiplying the
expense by one minus the tax rate.
B)
included as a cash outflow on an aftertax basis by multiplying the
expense by the tax rate.
C)
included as a cash outflow on a beforetax basis.
D)
ignored.
6.
(Ignore income taxes in this problem.) Given the following data:
Cost of equipment.
.............
$55,75
0
Annual cash inflows.
..........
$10,00
0
Internal rate of return.
........
16%
The life of the equipment must be:
A)
it is impossible to determine from the data given
B)
15 years
C)
12.5 years
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 Spring '09
 PROF.L.LIU
 Managerial Accounting

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