Acctg 305 Spring 2011 Test 3 Practice Test Ch 19

Acctg 305 Spring 2011 Test 3 Practice Test Ch 19 -...

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Binghamton University School of Management Accounting 305 Spring 2011 Test 3 Practice Test - Ch 19 Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. Reece Manufacturing Company is considering the following investment proposal: Original investment $15,000 Operations (per year for four years): Cash receipts $10,000 Cash expenditures 5,500 Salvage value of equipment after four years $1,000 Discount rate 10% The firm uses the straight-line method of depreciation with no mid-year convention. What is the payback period in years approximated to two decimal points, assuming no taxes are paid? a. 3.33 b. 1.50 c. 1.70 d. 3.78 ____ 2. Flynn Company is considering an investment in equipment for $60,000. Flynn uses the straight-line method of depreciation with no mid-year convention. In addition, its tax rate is 40 percent and the life of the equipment is five years with no salvage value. The expected income before depreciation and taxes is projected to be $30,000 per year. What is the payback period in years approximated to two decimal points? a. 1.00 b. 2.00 c. 2.63 d. 4.00 ____ 3. Houston Corporation is considering an investment in equipment for $45,000. Data related to the investment are as follows: Cash Flow before 12 March 2012 Page 1 of 9 2b099f9af50ab19eded446964ab43cfcadd181bd.doc
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Year Depreciation and Taxes 1 $30,000 2 30,000 3 30,000 4 30,000 5 30,000 Cost of capital is 18 percent. Houston uses the straight-line method of depreciation with no mid-year convention. In addition, its tax rate is 40 percent, and the life of the equipment is five years with no salvage value. What is the payback period in years approximated to two decimal points? a. 1.00 b. 0.67 c. 2.08 d. 1.50 ____ 4. Hunziker Company is considering the purchase of wood cutting equipment. Data on the equipment are as follows: Original investment $45,000 Net annual cash inflow $18,000 Expected economic life in years 5 Salvage value at the end of five years $4,500 The company uses the straight-line method of depreciation with no mid-year convention. What is the accounting rate of return on original investment rounded to the nearest percent, assuming no taxes are paid? a. 40% b. 73% c. 22% d. 24% ____ 5. Springer Company is considering the purchase of a new machine for $80,000. The machine would generate an annual cash flow before depreciation and taxes of $28,778 for five years. At the end of five years, the machine would have no salvage value. The company's cost of capital is 12 percent. The company uses straight-line depreciation with no mid-year convention and has a 40 percent tax rate. What is the accounting rate of return on the original investment in the machine approximated to two decimal points? a.
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This note was uploaded on 03/12/2012 for the course ACCT 211 taught by Professor Kamlet during the Spring '08 term at Binghamton.

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Acctg 305 Spring 2011 Test 3 Practice Test Ch 19 -...

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