Q12 - Managerial Accounting 102 Chapter 12 Exam May 2011...

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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 straight-line 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.

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Q12 - Managerial Accounting 102 Chapter 12 Exam May 2011...

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