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CAPITAL BUDGETING REVIEWER

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Accounting

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Exam Practice

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CHAPTER 12
MULTIPLE CHOICE QUESTIONS
26. The capital budget for the year is approved by a company's
a. board of directors.
b. capital budgeting committee.
c. officers.
d. stockholders.
27. All of the following are involved in the capital budgeting evaluation process except a
company's
a. board of directors.
b. capital budgeting committee.
c. officers.
d. stockholders.
28. Most of the capital budgeting methods use
a. accrual accounting numbers.
b. cash flow numbers.
c. net income.
d. accrual accounting revenues.
29. The first step in the capital budgeting evaluation process is to
a. request proposals for projects.
b. screen proposals by a capital budgeting committee.
c. determine which projects are worthy of funding.
d. approve the capital budget.
30. The capital budgeting decision depends in part on the
a. availability of funds.
b. relationships among proposed projects.
c. risk associated with a particular project.
d. all of these.
31. Capital budgeting is the process
a. used in sell or process further decisions.
b. of determining how much capital stock to issue.
c. of making capital expenditure decisions.
d. of eliminating unprofitable product lines.
32. If an asset costs $70,000 and is expected to have a $10,000 salvage value at the end of
its ten-year life, and generates annual net cash inflows of $10,000 each year, the cash
payback period is
a. 8 years.
b. 7 years.
c. 6 years.
d. 5 years.
47. Intangible benefits in capital budgeting would include all of the following except increased
a. product quality.
b. employee loyalty.
c. salvage value.

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Test Bank for Managerial Accounting, Third Edition
d. product safety.
48. Intangible benefits in capital budgeting
a. should be ignored because they are difficult to determine.
b. include increased quality or employee loyalty.
c. are not considered because they are usually not relevant to the decision.
d. have a rate of return in excess of the company’s cost of capital.
12-2

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Planning for Capital Investments 12-3
53. If a company's required rate of return is 9%, and in using the profitability index method, a
project's index is greater than 1, this indicates that the project's rate of return is
a. equal to 9%.
b. greater than 9%.
c. less than 9%.
d. unacceptable for investment purposes.
54. The profitability index is computed by dividing the
a. total cash flows by the initial investment.
b. present value of cash flows by the initial investment.
c. initial investment by the total cash flows.
d. initial investment by the present value of cash flows.
55. The capital budgeting method that takes into account both the size of the original
investment and the discounted cash flows is the
a. cash payback method.
b. internal rate of return method.
c. net present value method.
d. profitability index.
58. The following information is available for a potential investment for Panda Company:
Initial investment $40,000
Net annual cash inflow 10,000
Net present value 18,112
Salvage value 5,000
Useful life 10 yrs.
The potential investment’s profitability index is
a. 4.00
b. 2.85
c. 2.50
d. 1.45
59. An approach that uses a number of outcome estimates to get a sense of the variability
among potential returns is
a. the discounted cash flow technique.
b. the net present value method.
c. risk analysis.
d. sensitivity analysis.
62. A thorough evaluation of how well a project's actual performance matches the projections
made when the project was proposed is called a
a. pre-audit.
b. post-audit.
c. risk analysis.
d. sensitivity analysis.
63. Performing a post-audit is important because
a. managers will be more likely to submit reasonable data when they make investment
proposals if they know their estimates will be compared to actual results.
b. it provides a formal mechanism by which the company can determine whether existing
projects should be terminated.

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CHAPTER 12MULTIPLE CHOICE QUESTIONS26.The capital budget for the year is approved by a company'sa.board of directors.b.capital budgeting committee.c.officers.d.stockholders.27.All of the following are involved in the capital budgeting evaluation process except a company'sa.board of directors.b.capital budgeting committee.c.officers.d.stockholders.28.Most of the capital budgeting methods usea.accrual accounting numbers.b.cash flow numbers.c.net income.d.accrual accounting revenues.29.The first step in the capital budgeting evaluation process is toa.request proposals for projects.b.screen proposals by a capital budgeting committee.c.determine which projects are worthy of funding.d.approve the capital budget.30.The capital budgeting decision depends in part on thea.availability of funds.b.relationships among proposed projects.c.risk associated with a particular project.d.all of these.31.Capital budgeting is the processa.used in sell or process further decisions.b.of determining how much capital stock to issue.c.of making capital expenditure decisions.d.of eliminating unprofitable product lines.32.If an asset costs $70,000 and is expected to have a $10,000 salvage value at the end of its ten-year life, and generates annual net cash inflows of $10,000 each year, the cash payback period isa.8 years.b.7 years.c.6 years.d.5 years.47.Intangibl ...
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