## Managerial Accounting Final (Chapters 13-15)

In a statement of cash flows, receipts from sales of property, plant, and equipment should be classified as a(n):
Investing activity.
Investing activity
Sibble Corporation is considering the purchase of a machine that would cost \$330,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of \$50,000. By reducing labor and other operating costs, the machine would provide annual cost savings of \$76,000. The company requires a minimum pretax return of 12% on all investment projects. The net present value of the proposed project is closest to:
A. -\$56,020
B. -\$6,020
C. -\$48,764
D. -\$27,670
-\$27,670
Benz Company is considering the purchase of a machine that costs \$100,000, has a useful life of 18 years, and no salvage value. The company’s discount rate is 12%. If the machine’s net present value is \$5,850, then the annual cash inflows associated with the machine must be (round to the nearest whole dollar):
A. \$42,413
B. \$14,600
C. \$13,760
D. It is impossible to determine from the data given.
\$14,600
Sam Weller is thinking of investing \$70,000 to start a bookstore. Sam plans to withdraw \$15,000 from the business at the end of each year for the next five years. At the end of the fifth year, Sam plans to sell the business for \$110,000 cash. At a 12% discount rate, what is the net present value of the investment?
A. \$54,075
B. \$62,370
C. \$46,445
D. \$70,000
\$46,445
The management of Serpas Corporation is considering the purchase of a machine that would cost \$180,000, would last for 5 years, and would have no salvage value. The machine would reduce labor and other costs by \$46,000 per year. The company requires a minimum pretax return of 13% on all investment projects. The net present value of the proposed project is closest to:
A. \$27,138
B. \$50,000
C. -\$18,218
D. -\$33,565
-\$18,218
Stutz Company purchased a machine with an estimated useful life of seven years. The machine will generate cash inflows of \$8,000 each year over the next seven years. If the machine has no salvage value at the end of seven years, if Stutz’s discount rate is 12%, and if the net present value of this investment is \$15,000, then the purchase price of the machine was:
A. \$17,888
B. \$36,512
C. \$15,000
D. \$21,512
\$21,512
Charley has a typing service. He estimates that a new computer will result in increased cash inflow \$1,600 in Year 1, \$2,000 in Year 2 and \$3,000 in Year 3. If Charley’s required rate of return is 12%, the most that Charley would be willing to pay for the new computer would be:
A. \$4,623
B. \$5,159
C. \$3,294
D. \$4,804
\$5,159
At the completion of the project, the working capital will be released for use elsewhere. Compute the net present value of the project, using a discount rate of 10%:
A. \$606
B. \$8,271
C. \$(1,729)
D. \$1,729
\$606
The working capital would be released for use elsewhere when the project is completed. What is the net present value of the project, using a discount rate of 8 percent?
A. \$2,566
B. \$(251)
C. \$251
D. \$5,251
2,566
Logan Company is considering two projects, A and B. The following information has been gathered on these projects:

Based on this information, which of the following statements is (are) true?

I. Project A has the highest ranking according to the project profitability index criterion.
II. Project B has the highest ranking according to the net present value criterion.
A. Only I
B. Only II
C. Both I and II
D. Neither I nor II

Both I and II
The management of Dewitz Corporation is considering a project that would require an initial investment of \$65,000. No other cash outflows would be required. The present value of the cash inflows would be \$72,800. The profitability index of the project is closest to:
A. 0.12
B. 1.12
C. 0.88
D. 0.11
0.12
A project requires an initial investment of \$60,000 and has a project profitability index of 0.329. The present value of the future cash inflows from this investment is:
A. \$79,740
B. \$45,147
C. \$60,000
D. Cannot be determined with available data.
\$79,740
Deibel Corporation is considering a project that would require an investment of \$59,000. No other cash outflows would be involved. The present value of the cash inflows would be \$66,080. The profitability index of the project is closest to:
A. 0.88
B. 0.12
C. 1.12
D. 0.11
0.12
Czaplinski Corporation is considering a project that would require an investment of \$323,000 and would last for 7 years. The incremental annual revenues and expenses generated by the project during those 7 years would be as follows:

The scrap value of the project’s assets at the end of the project would be \$22,000. The payback period of the project is closest to:
A. 9.7 years
B. 4.4 years
C. 4.1 years
D. 10.4 years

4.4 years
The Higgins Company has just purchased a piece of equipment at a cost of \$120,000. This equipment will reduce operating costs by \$40,000 each year for the next eight years. This equipment replaces old equipment which was sold for \$8,000 cash. The new equipment has a payback period of:
A. 8.0 years
B. 2.8 years
C. 10.0 years
D. 3.0 years
2.8 Years
The management of Rusell Corporation is considering a project that would require an investment of \$282,000 and would last for 6 years. The annual net operating income from the project would be \$107,000, which includes depreciation of \$43,000. The scrap value of the project’s assets at the end of the project would be \$24,000. The payback period of the project is closest to:
A. 1.9 years
B. 2.4 years
C. 1.7 years
D. 2.6 years
1.9 years
The Jason Company is considering the purchase of a machine that will increase revenues by \$32,000 each year. Cash outflows for operating this machine will be \$6,000 each year. The cost of the machine is \$65,000. It is expected to have a useful life of five years with no salvage value. For this machine, the simple rate of return is:
A. 20%
B. 40%
C. 49.2%
D. 9.2%
20 %
Tu Corporation is investigating automating a process by purchasing a machine for \$423,000 that would have a 9 year useful life and no salvage value. By automating the process, the company would save \$112,000 per year in cash operating costs. The new machine would replace some old equipment that would be sold for scrap now, yielding \$27,000. The annual depreciation on the new machine would be \$47,000. The simple rate of return on the investment is closest to:
A. 15.4%
B. 16.4%
C. 26.5%
D. 11.1%
16.4 %
Hartong Corporation is contemplating purchasing equipment that would increase sales revenues by \$185,000 per year and cash operating expenses by \$89,000 per year. The equipment would cost \$416,000 and have a 8 year life with no salvage value. The annual depreciation would be \$52,000. The simple rate of return on the investment is closest to:
A. 23.8%
B. 12.5%
C. 10.6%
D. 23.1%
10.6 %
The capital budgeting method that recognizes the time value of money by discounting cash flows over the life of the project, using the company’s required rate of return as the discount rate is called the
the net present value method
If an investment has a project profitability index of 0.15, then the:
C. net present value of the project is positive.
C. net present value of the project is positive.
The length of time required to recover the initial cash outlay for a project is determined by
using the:
B. the payback method.
B. the payback method.
Under the indirect method of determining net cash provided by operating activities on the statement of cash flows, which of the following would be subtracted from net income?
C. A decrease in accounts payable.
A decrease in accounts payable.
An increase in the Prepaid Expenses account of \$1,000 over the course of a year would be shown on the company’s statement of cash flows prepared under the indirect method as
a deduction from net income of \$1,000 in order to arrive at net cash provided by operating activities
The gross margin percentage is most likely to be used to assess:
D. the overall profitability of the company’s products.
the overall profitability of the company’s products.
The market price of XYZ Company’s common stock dropped from \$25 to \$21 per share. The dividend paid per share remained unchanged. The company’s dividend payout ratio would
be unchanged
A drop in the market price of a firm’s common stock will immediately affect its
dividend yield ratio
Issuing new shares of stock in a five-for-one split of common stock would
decrease the book value per share of common stock.
A company’s current ratio and acid-test ratios are both greater than 1. The collection of a current accounts receivable of \$29,000 would
not affect the current ratio or the acid-test ratio.
What is the effect of a purchase of inventory on account on the current ratio and on working capital, respectively?
Decrease – No Effect
The ratio of cash, trade receivables, and marketable securities to current liabilities is
the acid-test ratio
Park Company purchased \$100,000 in inventory from its suppliers, on account. The company’s acid-test ratio would
decrease
Ozols Corporation’s most recent income statement appears below

The gross margin percentage is closest to

55.7%
The average stockholders’ equity for Horn Co. last year was \$2,000,000. Included in this figure was \$200,000 of preferred stock. Preferred dividends were \$16,000. If the return on common stockholders’ equity was 12.5% for the year, net income was
\$250,000
Archer Company had net income of \$40,000 last year. The company has 5,000 shares of common stock and 2,500 shares of preferred stock outstanding. There was no change in the number of common or preferred shares outstanding during the year. Preferred dividends were \$2 per share. The earnings per share of common stock was
\$7.00
Data concerning Bouerneuf Company’s common stock follow:
Book value oer share 24.00
Market Value per share 18.00
Earnings per share 6.00
Par Value per share 4.00
Dividend per share 1.00

The price-earnings ratio would be

\$3.00
Brandon Company’s net income last year was \$65,000 and its interest expense was \$20,000. Total assets at the beginning of the year were \$640,000 and total assets at the end of the year were \$690,000. The company’s income tax rate was 30%. The company’s return on total assets for the year was closest to
11.9%
Tronnes Corporation’s net income last year was \$1,750,000. The dividend on common stock was \$2.60 per share and the dividend on preferred stock was \$2.50 per share. The market price of common stock at the end of the year was \$57.70 per share. Throughout the year, 300,000 shares of common stock and 100,000 shares of preferred stock were outstanding. The price-earnings ratio is closest to
Last year, Shadow Corporation’s dividend on common stock was \$9.90 per share and the dividend on preferred stock was \$1.00 per share. The market price of common stock at the end of the year was \$68.10 per share. The dividend yield ratio is closest to
0.15
Excerpts from Lasso Corporation’s most recent balance sheet appear below:

Net income for Year 2 was \$145,000. Dividends on common stock were \$55,000 in total and dividends on preferred stock were \$20,000 in total. The return on common stockholders’ equity for Year 2 is closest to

13.0
Drama Company’s working capital is \$16,000 and its current liabilities are \$94,000. The company’s current ratio is closest to
0.17
Erastic Company has \$14,000 in cash, \$8,000 in marketable securities, \$34,000 in account receivable, \$40,000 in inventories, and \$42,000 in current liabilities. The company’s current assets consist of cash, marketable securities, accounts receivable, and inventory. The company’s acid-test ratio is closest to
2.29
Fraser Company had \$130,000 in sales on account last year. The beginning accounts receivable balance was \$10,000 and the ending accounts receivable balance was \$14,000. The company’s accounts receivable turnover was closest to
10.83
Damon Corporation has provided the following data from its most recent balance sheet:

The debt-to-equity ratio is closest to

6.00
In capital budgeting, what will be the effect on the following if there is an increase in the working capital needed for a project?
Decrease/No Effect
The following data pertain to an investment proposal:
Cost of Investment \$20,000
annual cost savings \$5,000
Estimated salvage value \$1,000
Life of the project 8 years
Discount rate 16%
The net present value of the proposed investment is:
\$2,025
Stutz Company purchased a machine with an estimated useful life of seven years. The machine will generate cash inflows of \$8,000 each year over the next seven years. If the machine has no salvage value at the end of seven years, if Stutz’s discount rate is 12%, and if the net present value of this investment is \$15,000, then the purchase price of the machine was
\$21,512
The following data pertain to an investment in equipment:
Invst in proj \$10,000
Annual Net cash inflw 2,400
Working cap. req 5,000
salvage value of the equip \$1,000
Life of the proj 8 years

At the completion of the project, the working capital will be released for use elsewhere. Compute the net present value of the project, using a discount rate of 10%

\$606
The Valentine Company has decided to buy a machine costing \$14,750. Estimated cash savings from using the new machine amount to \$4,500 per year. The machine will have no salvage value at the end of its useful life of five years. If Valentine’s required rate of return is 10%, the machine’s internal rate of return is closest to
16 %
Deibel Corporation is considering a project that would require an investment of \$59,000. No other cash outflows would be involved. The present value of the cash inflows would be \$66,080. The profitability index of the project is closest to
0.12
Czaplinski Corporation is considering a project that would require an investment of \$323,000 and would last for 7 years. The incremental annual revenues and expenses generated by the project during those 7 years would be as follows:
The scrap value of the project’s assets at the end of the project would be \$22,000. The payback period of the project is closest to
4.4 years
Which of the following would be considered a cash outflow in the investing activities section of the statement of cash flows?
Purchase of equipment
Based solely on the above information, the net cash provided by financing activities for the year on the statement of cash flows would be
\$(26,000)
In a statement of cash flows, which of the following would be classified as an operating activity?
Tax payments to governmental bodies
In a statement of cash flows, receipts from sales of property, plant, and equipment should be classified as a(n):
Investing activity
Which of the following would be added to net income in the operating activities section of a statement of cash flows prepared using the indirect method
Increase in accounts receivable
The sale of equipment at a gain would be shown on the statement of cash flows prepared under the indirect method in which of the following manners?
Cash received would be shown under Investing Activities and the gain would be subtracted from net income
The statement of cash flows
explains the change in the cash balance for one period of time
Which of the following is the correct treatment within the operating activities section of the statement of cash flows using the indirect method?
The change in Accounts Receivable is added to net income; The change in Inventory is subtracted from net income
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