Chapter 12 - Strategy and the Analysis of Capital Investments
83. Brandon Company is contemplating the purchase of a new piece of equipment for $45,000.
Brandon is in the 30% income tax bracket. Predicted annual after-tax cash inflows from this
investment
Chapter 12 - Strategy and the Analysis of Capital Investments
135. Megan Inc. has a policy of not accepting any investment proposal that requires more than
three years to payback. The company is considering the purchase of new drafting equipment for
$630,
Chapter 12 - Strategy and the Analysis of Capital Investments
131. The Zone Company is evaluating a capital expenditure proposal that requires an initial
investment of $1,040,000. The machine will improve productivity and thereby increases net
after-tax c
Chapter 12 - Strategy and the Analysis of Capital Investments
128. Jason Kirby is the leader of the capital budget group charged with reviewing capital
investment options for Archer Construction Corporation. Jason is an advocate of a short
payback period
Chapter 12 - Strategy and the Analysis of Capital Investments
118. Western Electronics (WE) is reviewing the following data relating to a new equipment
proposal:
WE expects the net after-tax savings in cash outflows from the investment to be equal in each
Chapter 12 - Strategy and the Analysis of Capital Investments
125. _ is the recommended method for determining the optimal capital budget
under conditions of capital rationing.
A. The net present value (NPV) method.
B. The use of Monte Carlo simulation.
C
Chapter 12 - Strategy and the Analysis of Capital Investments
105. LaVar, Inc. has obtained probability estimates from its production and sales departments
regarding the costs and selling prices it can anticipate for a new product line. The company is
unc
Chapter 12 - Strategy and the Analysis of Capital Investments
111. In situations where a firm specifies to different required rates of return (i.e., discount rates)
over the years, it is advantageous to use:
A. The payback method.
B. The book rate of retu
Chapter 12 - Strategy and the Analysis of Capital Investments
99. Which of the following statements regarding real options is true:
A. The farther away the expiration date, the less valuable the option is.
B. They can be incorporated into the capital budg
Chapter 12 - Strategy and the Analysis of Capital Investments
139. Solich Company is evaluating a new tractor that costs $1,350,000 to replace the tractor
purchased years earlier, which currently has no salvage value; the new tractor has an estimated
usef
Chapter 12 - Strategy and the Analysis of Capital Investments
145. Marc Corporation wants to purchase a new machine for $400,000. Management predicts
that the machine can produce sales of $275,000 each year for the next 5 years. Expenses are
expected to i
Chapter 12 - Strategy and the Analysis of Capital Investments
9. The process of identifying, evaluating, selecting, and controlling capital investments is
referred to as:
A. Investment discounting.
B. Capital rationing.
C. Capital investing.
D. Capital bu
Chapter 12 - Strategy and the Analysis of Capital Investments
3. Which of the following methods is potentially useful for helping an organization align its
capital expenditures with its strategy?
A. Multiproduct cost-volume-profit analysis.
B. Analytic hi
Chapter 12 - Strategy and the Analysis of Capital Investments
21. Research has shown that in framing capital investment decisions, sunk costs tend to:
A. Have no discernable impact on decisions by managers.
B. Have a slight impact on the decision-making p
Chapter 12 - Strategy and the Analysis of Capital Investments
15. The time value of money is explicitly considered in which of the following capital
budgeting method(s)?
A. Payback method.
B. Net present value (NPV) method.
C. Operating cash-flow method.
Chapter 12 - Strategy and the Analysis of Capital Investments
150. Slumber Company is considering two mutually exclusive investment alternatives. Its
estimated weighted-average cost of capital, used as the discount rate for capital budgeting
purposes, is
Chapter 12 - Strategy and the Analysis of Capital Investments
147. Nelson Inc. is considering the purchase of a $600,000 machine to manufacture a specialty
tap for electrical equipment. The tap is in high demand and Nelson can sell all that it could
manuf
Chapter 12 - Strategy and the Analysis of Capital Investments
141. Green Leaf Inc. is considering the purchase of a new piece of equipment for $30,000. The
projected after-tax net income per year on this investment is estimated to be $5,000. The firm
uses
Chapter 12 - Strategy and the Analysis of Capital Investments
143. Omaha Plating Corporation is considering purchasing a machine for $1,500,000. The
machine will generate a constant after-tax income of $100,000 per year for 15 years. The firm
will use str
Chapter 12 - Strategy and the Analysis of Capital Investments
92. A widely used approach that managers use to recognize uncertainty about individual items
and to obtain an immediate financial estimate of the financial consequences of possible
prediction e
Chapter 12 - Strategy and the Analysis of Capital Investments
87. Olsen Inc. purchased a $600,000 machine to manufacture a specialty tap for electrical
equipment. The tap is in high demand and Olsen can sell all that it could manufacture for the
next ten
Chapter 12 - Strategy and the Analysis of Capital Investments
79. Carmino Company is considering an investment in equipment that will generate an after-tax
income of $6,000 for each year of its four-year life. The asset has no salvage value. The firm is
i
2. For the above reasons, it is recommended that short-term financial performance indicators be supplemented with relevant nonfinancial
performance indicators, as part of a comprehensive management accounting and control system. These nonfinancial perform
3. The total overhead flexible-budget (FB) variance measures the difference between actual total overhead cost for a period and the FB for
overhead, based on outputs (or equivalently, standard allowed resource inputs for actual output of the period). This
Chapter 12 - Strategy and the Analysis of Capital Investments
63. Pique Corporation wants to purchase a new machine for $300,000. Management predicts
that the machine can produce sales of $200,000 each year for the next 5 years. Expenses are
expected to i
Chapter 12 - Strategy and the Analysis of Capital Investments
57. Pique Corporation wants to purchase a new machine for $300,000. Management predicts
that the machine can produce sales of $200,000 each year for the next 5 years. Expenses are
expected to i
Chapter 12 - Strategy and the Analysis of Capital Investments
44. Without knowing its required rate of return (i.e., hurdle rate) for use in the evaluation of
capital investment projects, a company will be prohibited from calculating a project's:
A. A
B.
Chapter 12 - Strategy and the Analysis of Capital Investments
49. Which of the following is not used to deal with uncertainty in the capital budgeting
process?
A. What-if analysis.
B. Sensitivity analysis.
C. Monte Carlo simulation.
D. Real options analys
Chapter 12 - Strategy and the Analysis of Capital Investments
33. Which one of the following methods assumes that all interim cash inflows generated by an
investment earn a return equal to the internal rate of return (IRR) of the investment?
A. Modified i
Chapter 12 - Strategy and the Analysis of Capital Investments
39. Two investments have the same total cash inflows and the same payback period. Therefore:
A. These two investments are equally desirable.
B. These two investments must be identical in terms