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Principles of Accounting, Volume 2: Managerial Accounting

Multiple Choice

Principles of Accounting, Volume 2: Managerial AccountingMultiple Choice
1.

LO 11.1Capital investment decisions often involve all of the following except ________.

  1. qualitative factors or considerations
  2. short periods of time
  3. large amounts of money
  4. risk
2.

LO 11.1Preference decisions compare potential projects that meet screening decision criteria and will be ranked in their preference order to differentiate between alternatives with respect to all of the following characteristics except ________.

  1. political prominence
  2. feasibility
  3. desirability
  4. importance
3.

LO 11.1The third step for making a capital investment decision is to establish baseline criteria for alternatives. Which of the following would not be an acceptable baseline criterion?

  1. payback method
  2. accounting rate of return
  3. internal rate of return
  4. inventory turnover
4.

LO 11.3You are explaining time value of money factors to your friend. Which factor would you explain as being larger?

  1. The future value of $1 for 12 periods at 6% is larger.
  2. The present value of $1 for 12 periods at 6% is larger.
  3. Neither one is larger because they are equal.
  4. There is not enough information given to answer this question.
5.

LO 11.3If you are saving the same amount each month in order to buy a new sports car when the new models are released, which of the following will help you determine the savings needed?

  1. future value of one dollar
  2. present value of one dollar
  3. future value of an ordinary annuity
  4. present value of an ordinary annuity
6.

LO 11.3You want to invest $8,000 at an annual interest rate of 8% that compounds annually for 12 years. Which table will help you determine the value of your account at the end of 12 years?

  1. future value of one dollar
  2. present value of one dollar
  3. future value of an ordinary annuity
  4. present value of an ordinary annuity
7.

LO 11.3Using the information provided, what transaction represents the best application of the present value of an annuity due of $1?

  1. Falcon Products leases an office building for 8 years with annual lease payments of $100,000 to be made at the beginning of each year.
  2. Compass, Inc., signs a note of $32,000, which requires the company to pay back the principal plus interest in four years.
  3. Bahwat Company plans to deposit a lump sum of $100,000 for the construction of a solar farm in 4 years.
  4. NYC Industries leases a car for 4 yearly annual lease payments of $12,000, where payments are made at the end of each year.
8.

LO 11.3Grummet Company is acquiring a new wood lathe with a cash purchase price of $80,000. The Wood Master Industries (the manufacturer) has agreed to accept $23,500 at the end of each of the next 4 years. Based on this deal, how much interest will Grummet pay over the life of the loan?

  1. $94,000
  2. $80,000
  3. $23,500
  4. $14,000
9.

LO 11.3The process that determines the present value of a single payment or stream of payments to be received is ________.

  1. compounding
  2. discounting
  3. annuity
  4. lump-sum
10.

LO 11.3The process of reinvesting interest earned to generate additional earnings over time is ________.

  1. compounding
  2. discounting
  3. annuity
  4. lump-sum
11.

LO 11.4The NPV method assumes that cash inflows associated with a particular investment occur when?

  1. only at the time of the initial investment
  2. only at the end of the year
  3. only at the beginning of the year
  4. at any of these times
12.

LO 11.4Which of the following does not assign a value to a business opportunity using time-value measurement tools?

  1. internal rate of return (IRR) method
  2. net present value (NPV)
  3. discounted cash flow model
  4. payback period method
13.

LO 11.4Which of the following discounts future cash flows to their present value at the expected rate of return, and compares that to the initial investment?

  1. internal rate of return (IRR) method
  2. net present value (NPV)
  3. discounted cash flow model
  4. future value method
14.

LO 11.4This calculation determines profitability or growth potential of an investment, expressed as a percentage, at the point where NPV equals zero

  1. internal rate of return (IRR) method
  2. net present value (NPV)
  3. discounted cash flow model
  4. future value method
15.

LO 11.5The IRR method assumes that cash flows are reinvested at ________.

  1. the internal rate of return
  2. the company’s discount rate
  3. the lower of the company’s discount rate or internal rate of return
  4. an average of the internal rate of return and the discount rate
16.

LO 11.5When using the NPV method for a particular investment decision, if the present value of all cash inflows is greater than the present value of all cash outflows, then ________.

  1. the discount rate used was too high
  2. the investment provides an actual rate of return greater than the discount rate
  3. the investment provides an actual rate of return equal to the discount rate
  4. the discount rate is too low
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