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| 1 | |
Emma Hamilton, the Project Evaluation Manager of a large multinational food manufacturing company, has been gathering information for a long-term investment in a new high-tech food processing plant, including the forecasting of annual cash inflows and cash outflows over a 20-year period. The food processing plant is expected to have a 30-year economic life and will cost approximately $500 million. Emma Hamilton will present her report on the economic feasibility of this investment to the board of directors. The board of directors will make a ____________ decision: |
| | A) | short-term planning |
| | B) | capital acquisition |
| | C) | tactical |
| | D) | long-term |
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| 2 | |
Emma Hamilton, the Project Evaluation Manager of a large multinational food manufacturing company, has responsibility for the capital expenditure analyses undertaken by the company. She would be responsible for the capital expenditure analysis of all of the following projects except: |
| | A) | the acquisition of a computer-integrated manufacturing system |
| | B) | the addition of a new product line |
| | C) | a short-term, one-off special order decision |
| | D) | the construction of a new factory building |
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| 3 | |
Emma Hamilton, the Project Evaluation Manager for a large multinational food manufacturing company, has been gathering information for a long-term investment in a new high-tech food processing plant, including the forecasting of annual cash inflows and cash outflows over a 20-year period. The food processing plant is expected to have a 30-year economic life and will cost approximately $500 million. Emma has assigned to her assistant, a graduate trainee named Brendan Smith, the task of calculating the amount of time it will take for the cash inflows of the project to accumulate to an amount that covers the original investment. Brendan has calculated the: |
| | A) | accounting rate of return |
| | B) | net present value |
| | C) | internal rate of return |
| | D) | payback period |
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| 4 | |
The annual cash flow from a proposed capital expenditure project is forecast to be $100 000 for 10 years with an initial investment of $70 000. The payback period may be calculated as: |
| | A) | annual cash flow ÷ initial investment |
| | B) | initial investment ÷ annual cash flow |
| | C) | annual cash flow ÷ present value factor |
| | D) | initial investment ÷ present value factor |
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| 5 | |
Emma Hamilton, the Project Evaluation Manager for a large multinational food manufacturing company, has been gathering information for a long-term investment in a new high-tech food processing plant, including the forecasting of annual cash inflows and cash outflows over a 20-year period. The food processing plant is expected to have a 30-year economic life and will cost approximately $500 million. Emma has assigned to her assistant, a graduate trainee named Brendan Smith, the task of calculating the present value of the forecast future cash flows for the food processing plant. Brendan has calculated the: |
| | A) | budgeted cash flows |
| | B) | rebated cash flows |
| | C) | discounted cash flows |
| | D) | future value cash flows |
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| 6 | |
Emma Hamilton, the Project Evaluation Manager for a large multinational food manufacturing company, has been gathering information for a long-term investment in a new high-tech food processing plant, including the forecasting of annual cash inflows and cash outflows over a 20-year period. The food processing plant is expected to have a 30-year economic life and will cost approximately $500 million. Emma is discussing with her assistant, a graduate trainee named Brendan Smith, the fundamental difference between the discounted cash flow and accounting rate of return methods of analysing and evaluating capital expenditure proposals. She explains to Brendan that the fundamental difference is that: |
| | A) | the accounting rate of return method focuses on the incremental accrual accounting profit that results from a capital expenditure project, whereas the discounted cash flow methods focus on the cash flow resulting from a capital expenditure project |
| | B) | the discounted cash flow methods do not take into account the time value of money whereas the accounting rate of return method does |
| | C) | the accounting rate of return method does not take into account the depreciation charges appropriate for the investment in a depreciable, long-term asset |
| | D) | the discounted cash flow methods take into account the depreciation charges appropriate for the investment in a depreciable, long-term asset |
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| 7 | |
Candice La Fontaine has been extremely lucky and won a $10 million prize in a lottery. She has the opportunity to take the $10 million in a lump sum or alternatively receive $1 million per annum for 10 years. Candice has studied management accounting in her undergraduate accounting course and she knows that it is more beneficial to receive the $10 million dollars in a lump sum as she can earn interest on the $10 million from the first day that she receives it. Candice is using the time value of money concept to make her decision. The basic concept of the time value of money is: |
| | A) | that the cash flows received in different years should be treated as being equal |
| | B) | that the cash flows received in the distant future are not as valuable as cash flows received in the near future |
| | C) | that the accessibility of money in the future will be as easy as today |
| | D) | that the recognition of all relevant costs must be in absolute dollars |
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| 8 | |
If a capital expenditure proposal has a net present value of $0 when the discount rate is 8%, what can be concluded about the internal rate of return of the proposal? |
| | A) | The internal rate of return is greater than 8%. |
| | B) | The internal rate of return is less than 8%. |
| | C) | The internal rate of return is equal to 8%. |
| | D) | The internal rate of return is equal to zero. |
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| 9 | |
The present value of $100 000 to be received 10 years from today and earning a return of 6% per annum is: |
| | A) | $55 800 |
| | B) | $13 587 |
| | C) | $7587 |
| | D) | $171 100 |
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| 10 | |
Gresswell Ltd purchased a replacement piece of equipment with the following information: useful life, five years; annual net cash inflow, $50 000; salvage value, $0; internal rate of return, 8%; cost of capital, 6%. The initial cost of the piece of equipment was: |
| | A) | $210 600 |
| | B) | $199 650 |
| | C) | $281 850 |
| | D) | $293 350 |
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