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True False Quiz
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1
Planning plant asset investments is called capital budgeting.
A)True
B)False
2
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
3
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
4
It is possible to determine a payback period when the net cash flows from the project are uneven.
A)True
B)False
5
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
6
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
7
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
8
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
9
A project is acceptable if the total present value of its cash flows exceeds the amount to be invested.
A)True
B)False
10
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
11
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
12
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
13
A sunk cost arises from a past decision and cannot be avoided or changed.
A)True
B)False
14
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
15
Opportunity costs, like sunk costs, are irrelevant to decision making.
A)True
B)False
16
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
17
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
18
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
19
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
20
Opportunity costs are not a factor in a rework or scrap decision.
A)True
B)False
21
The amount of incremental revenue is the determining factor in a 'sell or process further' decision.
A)True
B)False
22
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
23
Avoidable and escapable costs are same costs.
A)True
B)False
24
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
25
Break-even time (BET) is a method of determining the payback period in terms of discounted cash flows.
A)True
B)False
26
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
27
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
28
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
29
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
30
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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