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| 1.
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Planning plant asset investments is called capital budgeting. |
| | A) | True |
| | B) | False |
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| 2.
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The payback period of an investment is determined by dividing the cost of the investment by the revenues generated from the investment. |
| | A) | True |
| | B) | False |
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| 3.
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If the cost of an investment is $12,000 and the expected annual sales from the investment is $4,000, then the payback period is 3.0 years. |
| | A) | True |
| | B) | False |
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| 4.
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It is possible to determine a payback period when the net cash flows from the project are uneven. |
| | A) | True |
| | B) | False |
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| 5.
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The major weaknesses of using the payback period as the sole criteria for capital budgeting decisions is that it ignores the timing of the cash flows, the risk involved, and the extent or amount of the cash flows beyond the payback period. |
| | A) | True |
| | B) | False |
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| 6.
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The result of dividing the annual, after-tax income that results from using an asset by the average investment in the asset is known as the accounting rate of return or the rate of return on average investment. |
| | A) | True |
| | B) | False |
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| 7.
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The return on average investment for an investment in production machinery will be lower if the ending book value is used in place of the final year's book value, when determining the average investment. |
| | A) | True |
| | B) | False |
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| 8.
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Using an accounting rate of return is limited because of its failure to distinguish between two investments with the same average annual net income but where one yields higher amounts in the early years and the other in later years. |
| | A) | True |
| | B) | False |
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| 9.
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A project is acceptable if the total present value of its cash flows exceeds the amount to be invested. |
| | A) | True |
| | B) | False |
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| 10.
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There is no advantage to using accelerated amortization methods for tax reporting in so far as the present value of cash flows are affected. |
| | A) | True |
| | B) | False |
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| 11.
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The use of the net present value method for investment decisions is limited to those investments that generate equal annual net cash flows over the life of the investment. |
| | A) | True |
| | B) | False |
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| 12.
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When using the internal rate of return to evaluate capital investments, the user must determine the hurdle rate that the internal rate must exceed for the capital investment to be acceptable. |
| | A) | True |
| | B) | False |
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| 13.
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A sunk cost arises from a past decision and cannot be avoided or changed. |
| | A) | True |
| | B) | False |
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| 14.
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A cost incurred as a consequence of a past irrevocable decision and that, therefore, cannot be avoided is known as an opportunity cost. |
| | A) | True |
| | B) | False |
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| 15.
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Opportunity costs, like sunk costs, are irrelevant to decision making. |
| | A) | True |
| | B) | False |
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| 16.
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In a decision to accept an additional volume of business, the costs relevant to reaching a decision are the incremental or differential costs. |
| | A) | True |
| | B) | False |
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| 17.
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In make or buy decisions, the predetermined overhead rate should be ignored when determining the overhead associated with making a product. |
| | A) | True |
| | B) | False |
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| 18.
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Costs incurred in manufacturing units of product not meeting quality standards are sunk costs and are irrelevant in any decision of whether to sell the units as scrap or rework them so they meet quality standards. |
| | A) | True |
| | B) | False |
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| 19.
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The decision between selling units as scrap or reworking them so that they meet the quality standards necessary for them to be sold will be influenced by the sunk costs incurred in manufacturing the units that did not meet the quality standards. |
| | A) | True |
| | B) | False |
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| 20.
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Opportunity costs are not a factor in a rework or scrap decision. |
| | A) | True |
| | B) | False |
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| 21.
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The amount of incremental revenue is the determining factor in a 'sell or process further' decision. |
| | A) | True |
| | B) | False |
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| 22.
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In all cases where a company can manufacture more than one product, and the company has no excess capacity, it should manufacture only the most profitable product. |
| | A) | True |
| | B) | False |
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| 23.
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Avoidable and escapable costs are same costs. |
| | A) | True |
| | B) | False |
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| 24.
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A decision rule regarding eliminating a segment is that a segment is a candidate for elimination if its revenues are less than its unavoidable expense. |
| | A) | True |
| | B) | False |
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| 25.
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Break-even time (BET) is a method of determining the payback period in terms of discounted cash flows. |
| | A) | True |
| | B) | False |
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| 26.
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Except for the payback period method, the accounting rate of return, the net present value and the internal rate of return all consider the time value of money when evaluating capital investments. |
| | A) | True |
| | B) | False |
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| 27.
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Amortization is an expense which is added back to net income from an investment to compute the net cash flow from this investment. |
| | A) | True |
| | B) | False |
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| 28.
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The net present value of an investment is determined by using trial and error to computer the value, if the cash flows are uneven. |
| | A) | True |
| | B) | False |
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| 29.
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The accounting rate of return yields a percent measure. It is computed using net cash flows for the expected life of the project. |
| | A) | True |
| | B) | False |
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| 30.
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The internal rate of return requires some trial and error estimation when the cash flows are uneven. |
| | A) | True |
| | B) | False |
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