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Exam 15: Capital Investment Analysis

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Question 41

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Average rate of return equals average investment divided by estimated average annual income.

A) True
B) False

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Question 42

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When evaluating a proposal by use of the net present value method,if there is an excess of present value over the amount to be invested,the rate of return on the proposal is more than the rate used in the analysis.

A) True
B) False

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Question 43

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A series of unequal cash flows at fixed intervals is termed an annuity.

The anticipated purchase of a fixed asset for $400,000,with a useful life of 5 years and no residual value,is expected to yield total net income of $200,000 for the 5 years.The expected average rate of return on investment is 20%.

Decisions to install new equipment,replace old equipment,and purchase or construct a new building are examples of

The average rate of return for this investment is

A $350,000 capital investment proposal has an estimated life of four years and no residual value.The estimated net cash flows are as follows: The minimum desired rate of return for net present value analysis is 12%.The present value of $1 at compound interest of 12% for 1,2,3,and 4 years is .893,.797,.712,and .636,respectively.Determine the net present value.

The rate of earnings is 10% and the cash to be received in two years is $10,000.Determine the present value amount,using the following partial table of present value of $1 at compound interest.

The average rate of return method of capital investment analysis gives consideration to the present value of future cash flows.

Which of the following is a present value method of analyzing capital investment proposals?

By converting dollars to be received in the future into current dollars,the present value methods take into consideration that money

Using the following partial table of present value of $1 at compound interest,determine the present value of $20,000 to be received three years hence,with earnings at the rate of 10% A year.

The net present value for this investment is

Harris Co.is considering a 12-year project that is estimated to cost $900,000 and has no residual value.Harris seeks to earn an average rate of return of 15% on all capital projects.Determine the necessary average annual income (using straight-line depreciation)that must be achieved on this project for it to be acceptable to Harris Co.

Which of the following can be used to place capital investment proposals involving different amounts of investment on a comparable basis for purposes of net present value analysis?

Which method of evaluating capital investment proposals uses present value concepts to compute the rate of return from the net cash flows expected from capital investment proposals?

Qualitative considerations in capital investment decisions are most appropriate for strategic investments or those that are designed to affect a company's long-term ability to generate profits.

The expected period of time that will elapse between the date of a capital investment and the complete recovery in cash of the amount invested is called the cash payback period.

The net present value has been computed for Proposals A and B.Relevant data are as follows: Determine the present value index for each proposal.

The anticipated purchase of a fixed asset for $400,000,with a useful life of 5 years and a $40,000 residual value,is expected to yield total net income of $200,000 for the 5 years.The expected average rate of return on investment is 18.2%.