1. The process of analyzing alternative investments and deciding which assets to acquire or sell is known as:
a. Planning and Control
b. Capital budgeting
c. Variance analysis
d. Master budgeting
e. Managerial accounting
2. The calculation of annual net cash flow from a particular investment project should include all of the following except:
A. Income taxes.
B. Revenues generated by the investment.
C. Cost of products generated by the investment.
D. Depreciation expense.
E. General and administrative expenses.
3. Capital budgeting decisions are risky because all of the following are true except:
A. The outcome is uncertain.
B .Large amounts of money are usually involved.
C. The investment involves a long-term commitment.
D. The decision could be difficult or impossible to reverse.
E. They rarely produce net cash flows.
4 .A the company's required rate of return, typically its cost of capital is called the:
A. Internal rate of return.
B. Average rate of return.
C. Hurdle rate.
D. Maximum rate.
E. Payback rate.
5. In business decision making, managers typically examine the two fundamental factors of:
A. Risk & capital investment.
B. Risk & return.
C. Capital investment & rate of return.
D. Risk & payback.
E. Payback & rate of return.
6. An opportunity cost:
A. Is an unavoidable cost because it remains the same regardless of the alternative chosen.
B. Requires a current outlay of cash.
C. Results from past managerial decisions.
D. Is the potential benefit lost by choosing a specific alternative course of action among two or more.
E. Is irrelevant in decision making because it occurred in the past.
7 .A cost that cannot be avoided or changed because it arises from a past decision, and is irrelevant to future decisions, is called a(n):
a. Uncontrollable cost.
b. Incremental cost.
c. Opportunity cost.
d. Out-of-pocket cost.
e. Sunk cost.
8. An additional cost incurred only if a company pursues a particular course of action is a(n):
A. sunk cost.
B. pocket cost.
C. period cost.
D. incremental cost.
E. discount cost
9. Gordon Corporation inadvertently produced 10,000 defective digital watches. The watches cost $8 each to produce. A salvage company will purchase the defective units as they are for $3 each. Gordon's production manager reports that the defects can be corrected for $5 per unit, enabling them to be sold at their regular market price of $12.50. Gordon should: Sell the watches for $3 per unit. Sell 5,000 watches to the salvage company and repair the remainder. Throw the watches away. Sell the watches as they are because repairing them will cause their total cost to exceed their selling price. Correct the defects and sell the watches at the regular price.
A. Sell the watches for $3 per unit.
B. Correct the defects and sell the watches at the regular price.
C. Sell the watches as they are because repairing them will cause their total cost to exceed their selling price.
D. Sell 5,000 watches to the salvage company and repair the remainder.
E. Scrap the watches.
10.Product A requires 5 machine hours per unit to be produced, Product B requires only 3 machine hours per unit, and the company's productive capacity is limited to 240,000 machine hours. Product A sells for $16 per unit and has variable costs of $6 per unit. Product B sells for $12 per unit and has variable costs of $5 per unit. Assuming the company can sell as many units of either product as it produces, the company should:
A. Produce only Product A.
B. Produce only Product B.
C. Produce equal amounts of A and B.
D. Produce A and B in the ratio of 62.5% A to 37.5% B.
E. Produce A and B in the ratio of 40% A and 60% B.