Capital Budgeting Paper 20

1

All of the following capital budgeting analysis techniques use cash flows as the primary basis for the calculation except for the






2

Which of the following is an advantage of the accounting rate of return method of evaluating investment returns?






3

Tam Co. is negotiating for the purchase of equipment that would cost $100,000, with the expectation that $20,000 per year could be saved in after-tax cash costs if the equipment were acquired. The equipmentís estimated useful life is ten years, with no residual value, and it would be depreciated by the straight-line method. Tamís predetermined minimum desired rate of return is 12%. The present value of an annuity of 1 at 12% for ten periods is 5.65. The present value of 1 due in ten periods at 12% is .322. Accrual accounting rate of return based on the initial investment is






4

Lin Co. is buying machinery it expects will increase average annual operating income by $40,000. The initial increase in the required investment is $60,000, and the average increase in required investment is $30,000. To compute the accrual accounting rate of return, what amount should be used as the numerator in the ratio?






5

The capital budgeting technique known as accounting rate of return uses
Revenue over life of project . . . Depreciation expense






6

If an investment project has a profitability index of 1.15, then the






7

The net present value (NPV) method of investment project analysis assumes that the projectís cash flows are reinvested at the






8

A projectís net present value, ignoring income tax considerations, is normally affected by the






9

The discount rate (hurdle rate of return) must be determined in advance for the






10

The internal rate of return is the






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