ch11 - CHAPTER 11 MANAGING LONG-LIVED RESOURCES: CAPITAL...

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Unformatted text preview: CHAPTER 11 MANAGING LONG-LIVED RESOURCES: CAPITAL BUDGETING TRUE/FALSE 1. Money is not a productive asset because it is not a long-lived resource. LO1 False Money is a productive asset. 2. The opportunity of cash is the time value of money. LO1 True 3. It is not difficult to match the supply and demand for capacity resources over a period of months or even years. LO1 False It is difficult to match the supply and demand for capacity resources over a period of months or even years. 4. Cost allocations ignore the lumpy nature of capacity resources, and estimate costs as if we can match supply and demand continuously and smoothly. LO1 True 5. Strategic plans specify how the company intends to achieve its long-term objectives, and dictate what resources the firm needs to execute its plans. LO1 True 6. As it relates to capital expenditure decisions, cost of capital is the opportunity cost of capital required for the proposed investment. LO2 True 7. The initial outlay for an asset does not include the cost of installation and training charges. LO2 False The initial outlay includes all costs incurred to ready the asset for its intended use. 8. The salvage of an asset is the residual value from disposing of the asset at the end of its useful life. LO2 True 9. Setting an estimated life expectancy of an asset too low understates the profitability of the investment and could result in the firm rejecting profitable opportunities. LO2 True 11-1 Balakrishnan Managerial Accounting 10. The cost of capital is measured as the total of all costs incurred to ready an asset for its intended use, including purchase price, shipping and delivery, taxes, and any installation and training costs. LO2 False The cost of capital is measured as the rate of return that providers of capital expect from their investment. 11. The two main discounted cash flow techniques used in capital budgeting are net present value (NPR) and cost-volume-profit (CVP). LO3 False The two main discounted cash flow techniques used in capital budgeting are net present value (NPV) and internal rate of return (IRR). 11-2 Managing Long-lived Resources: Capital Budgeting 12. When analyzing capital investments using the NPV method, the first step is to discount the initial investment. LO3 False The initial investment account is already at its present value. It requires no discount....
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ch11 - CHAPTER 11 MANAGING LONG-LIVED RESOURCES: CAPITAL...

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