Quiz 25 – Flashcards

Capital budgeting decisions are generally based on:

A company is planning to purchase a machine that will cost $24,000, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the accounting rate of return for this machine?

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):

Parker Plumbing has received a special one-time order for 1,500 faucets (units) at $5 per unit. Parker currently produces and sells 7,500 units at $6.00 each. This level represents 75% of its capacity. Production costs for these units are $4.50 per unit, which includes $3.00 variable cost and $1.50 fixed cost. To produce the special order, a new machine needs to be purchased at a cost of $1,000 with a zero salvage value. Management expects no other changes in costs as a result of the additional production. Should the company accept the special order?

Marcus processes four different products that can either be sold as is or processed further. Listed below are sales and additional cost data:

A cost that requires a current and/or future outlay of cash, and is usually an incremental cost, is a(n):

Which one of the following methods considers the time value of money in evaluating alternative capital expenditures?

A limitation of the internal rate of return method is:

The break-even time (BET) method is a variation of the:

Capital budgeting decisions usually involve analysis of: