Ch20_Guan CM_AISE TB - Chapter 20Capital Investment...

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Chapter 20—Capital Investment MULTIPLE CHOICE 1. _______________ decisions are concerned with the process of planning, setting goals and priorities, arranging financing, and using certain criteria to select long-term assets. a. Limited resources b. Sell now or process further c. Capital investment d. Make-or-buy ANS: C PTS: 1 OBJ: 20-1 2. Which of the following is an example of an independent project? a. A manufacturing plant considering a major overhaul of an existing machine or replacing the existing machine with a new model b. A hospital considering the purchase of a new MRI machine and a new cardiac monitoring system. c. A bank deciding between keeping a manual check sorting process or an automated sort process. d. A retailer deciding between an inventory management system offered by two different vendors. ANS: B PTS: 1 OBJ: 20-1 3. _______________ are projects that, if accepted, preclude the acceptance of all other competing pro- jects. a. Independent projects b. Mutually exclusive projects c. Dependent projects d. Both b and c ANS: B PTS: 1 OBJ: 20-1 4. Which of the following is NOT an example of information the payback period can provide to manage- ment? a. Minimize the impact of an investment on a firm’s liquidity performance b. Help control the risks associated with the uncertainty of future cash flows c. Help control the risk of obsolescence d. Helps determine the project’s total profitability ANS: D PTS: 1 OBJ: 20-2 5. Maple Management Services is considering an investment of $60,000. Data related to the investment are as follows: Year Cash Flow 1 $20,000 2 24,000 3 30,000 4 40,000 5 20,000 This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher.
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Cost of capital is 18 percent. What is the payback period in years approximated to two decimal points, assuming no taxes are paid? a. 3.00 b. 2.00 c. 2.53 d. 2.22 ANS: C SUPPORTING CALCULATIONS: 2 + ($16,000/$30,000) = 2.53 PTS: 1 OBJ: 20-2 6. Mitchell Services is considering an investment of $25,000. Data related to the investment are as fol- lows: Year Cash Flow 1 $10,000 2 11,000 3 8,000 4 15,000 5 15,000 Cost of capital is 14 percent. What is the payback period in years approximated to two decimal points, assuming no taxes are paid? a. 2.12 b. 4.00 c. 2.50 d. 3.00 ANS: C SUPPORTING CALCULATIONS: 2 + ($4,000/$8,000) = 2.50 PTS: 1 OBJ: 20-2 7. Harrison Company was considering the purchase of equipment. Details on the equipment are as fol- lows: Year Original Investment Cash Flow 0 $200,000 1 $40,000 2 40,000 3 60,000 4 40,000 5 60,000 6 30,000 What is the payback period in years, assuming no taxes are paid? a.
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This note was uploaded on 01/19/2012 for the course ACC 3302 taught by Professor Pence during the Fall '10 term at University of Houston - Downtown.

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Ch20_Guan CM_AISE TB - Chapter 20Capital Investment...

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