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Managerial Accounting – 102
Chapter 12 Exam
May 2011
Ignore income taxes on all problems.
The following information applies to questions 1 through 4
Henley Co. is considering a capital investment of $600,000 in new equipment. It is expected to have a
useful life of 10 years with no salvage value. Depreciation is computed by the straightline method. As a
result of the investment, net income is expected to increase by $52,500 per year while net cash inflows
will be $112,500 per year. Henley would have to borrow the investment money at a cost of capital of 15%.
1)
Annual Rate of Return (Accounting Rate of Return) =
a)
about 5½%
b)
about 12%
c)
about 17½%
d)
about 47%
2)
Cash Payback Period =
a)
10 years or more
b)
8 ½ years or more but less than 10 years
c)
6 ½ years or more but less than 8 ½ years
d)
4 ½ years or more but less than 6 ½ years
e)
less than 4 ½ years
3)
Net Present Value =
a)
More than $100,000
b)
Between $50,000 and $99,999
c)
Between $0 and $49,999
d)
less than $0
4)
Internal Rate of Return =
a)
more than 15%
b)
between 12% and 15%
c)
between 11% and 12%
d)
between 10 and 11%
e)
less than 10%
5)When using discounted cash flow techniques,
a)
a project with an internal rate of return that is zero or positive is acceptable.
b)
a project with a net present value that is zero or positive is acceptable.
c)
expected salvage value should be ignored as a noncash flow item.
d)
the internal rate of return method can be used with unequal annual cash inflows, but the net
present value method can
not
be used
.
6)
White Company's required rate of return on capital budgeting projects is 12%. The company is
considering an investment opportunity which would yield a single cash flow of $10,000 in five years.
What is the most that the company should be willing to invest in this project?
a)
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This note was uploaded on 06/04/2011 for the course ACCT 1212 taught by Professor Tuck during the Spring '11 term at greenriver.edu.
 Spring '11
 TUCK
 Accounting, Managerial Accounting, Taxes

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