managerial accounting final (12,13) – Flashcards
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interest is the difference between the amount borrowed and the amount repaid
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true
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compound interest is computed on principal and on any interest that has not been paid or withdrawn
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true
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which of the following is false
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simple interest is generally applicable to long term situations
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when the computation of interest includes both principal and any interest earned that has not been paid or withdrawn the calculation involves
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compound interest
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the process of determining the present value
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is referred to as discounting the future amount
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the present value of a given amount is based on each of the following except the
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date of the original, transaction
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the further removed from the present the future value is the smaller its present value
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true
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the present value of annuity is the value now of a series of future receipts or payments discounted assuming simple interest
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false
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in computing the present value of an annuity you need to know
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the amount of the periodic payments or receipts the number of compounding periods and the discount rate
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in computing the present value of an annuity each of the following is needed except the
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present value of 1 factors
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to compute the present value of a bond both the interest payments and the principal amount must be discounted
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true
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if the investors required rate of return is greater than the contractual rate for bonds which pay interest semiannually
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the bonds will sell at a discount
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estimated cash inflows and outflows are the preparred inputs for capital budgeting decisions
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true
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which of the following is not a cash inflow used as an input in capital budgeting decisions
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increased operating costs
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the rate of return that management expects to pay on all borrowed and equity funds is the
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cost of capital
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the preferred inputs for capital budgeting purposes are
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estimated cash flows
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when the payback period is longer the investment is more attractive to management
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false
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the cash payback period is computed by dividing the
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cost of the investment by the net annual cash inflow
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which of the following formulas is used for computing the cash payback period
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cost of capital investment/ net annual cash flow
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when using the net present value method the proposal is acceptable when the net present value is negative
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false
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one of the assumptions of the net present value method is that all cash flows can be predicted with certainty
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true
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net present value is the difference between the
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present value of future net cash flows and the capital investment
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when applying the net present value method with unequal cash flow
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the present value of a single future amount must be applied to each annual cash flow
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the rate that will cause the present value of the proposed capital expenditure to equal the present value of the expected annual cash inflows is the
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internal rate of return
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which of the following is not one of the simplifying assumptions made when applying the net present value method
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all cash flows come at the end of each year, all cash flows are immediately reinvested in another project that has a similar return, all cash flows can be predicted with certainty
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which of the following is not one of the ways intangible benefits can be included in capital budgeting
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ignore intangible benefits altogether
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intangible benefits should be ignored in NPV techniques
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false
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if a project has intangible benefits whose value is hard to estimate the best thing to do is
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either include a conservative estimate of their value or ignore their value in your initial net present value calculation but then estimate whether their potential value is worth at least the amount of the net present value deficiency
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which of the following is the formula used to calculate the profitability index
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present value of net cash flows/ initial investment
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an evaluation of investment projects after their completion is called
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a post audit
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what cash flows are used when conducting a post audit of an investment using the net present value approach
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actual cash flows `
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he formula used to calculate the internal, rate of return is similar to the formula used to calculate the
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cash payback period
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all of the following methods use cash inflows except the
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annual rate of return method
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annual rate of return is computed by dividing
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expected annual net income by average investment
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cash outflows include sale of old equipment
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false
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which of the following is not an example of a capital budgeting decision
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decision to build a new plant, decision to renovate an existing facility, decision to buy a piece of machinery
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what is the order of involvement of the following parties in the capital, budgeting authorization process
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plant managers, capital budget committee, officers, board of directors
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the process of making capital expenditure decisions in business is known as
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capital budgeting
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which of following is not a cash outflow used as an input in capital budgeting decisions
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salvage value of equipment when project is complete
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cash payback method assumes equal net annual cash flows
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true
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what is a weakness of the cash payback approach
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it ignores the time value of money and ignores the useful life of alternative projects
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discounted cash flows techniques are generally recognized as the best conceptual approaches to making capital budgeting decisions
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true
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any project with a positive NPV will have a profitability index above 1
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true
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which is a true statement regarding using higher discount rate to calculate the net present value of a project
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it will make it less likely that the project will be accepted
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a positive net present value means that the
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projects rate of return exceeds the required rate of return
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which of the following is an alternative name for the discount rate
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hurdle rate, required rate of return, cutoff rate
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a positive net present value indicates that
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the rate of return on the investment is greater than the discount rate
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when calculating an investments net present value which table is used when the annual cash flows are even or equal
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present value of an annuity table
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intangible benefits in capital budgeting
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might include increased product quality and improved safety
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how should intangible benefits be included in the net present value calculation of an investment
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at their discounted cash flow amount
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the profitability index used to compare alternative projects is computed by dividing the
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present value of net cash flows by the initial investment
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a post audit of an investment project should be performed
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on all significant capital expenditure projects
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which of the following is not one of the reasons a post audit of investment projects is important
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post audit provide a formal mechanism for deciding if investments should be continued or discounted
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post audit evaluations of investment projects are not necessary in well run organizations
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false
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a project should be accepted if its internal rate of return exceeds
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the company's required rate of return
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the internal rate of return factor is computed by dividing the
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a capital investment by the net annual cash flow
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which of the following is based directly on accrual accounting data
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annual rate of return
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which of the following is incorrect about the annual rate of return technique
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the time value of money is considered
