Diagnostic Examination For Capital Budgeting

A project’s net present value, ignoring income tax considerations, is normally affected by the
Group of answer choices
Carrying amount of the asset to be replaced by the project.
Amount of annual depreciation on fixed assets used directly on the project.
Proceeds from the sale of the asset to be replaced. Quizlet CH GDOCS
Amount of annual depreciation on the asset to be replaced.

Question 21 pts
With regard to capital investment, net cash inflow is equal to the
sum of all future revenues from the investment.
net increase in cash receipts over cash payments.
cost savings resulting from the investment.
net increase in cash payments over cash receipts. CH quizlet chegg

Question 31 pts
Which of the following payback methods considers the salvage value in its basic computations?
Bail out payback gdocs internet, CH bartleby
Discounted payback
Traditional payback
Present value payback

PreviousNext
Question 41 pts
In capital expenditures decisions, the following are relevant in estimating operating costs except
Cash costs.
Differential costs.
Historical costs. GDOCS studocu
Future costs.
Question 51 pts
Mahlin Movers, Inc. is planning to purchase equipment to make its operations more efficient. This equipment
has an estimated useful life of six years. As part of this acquisition, a P150,000 investment in working capital
is required. In a discounted cash flow analysis, this investment in working capital should be
Disregarded because no cash is involved.
Treated as an immediate cash outflow that is recovered at the end of six years. GDOCS studocu
Amortized over the useful life of the equipment.
Treated as a recurring annual cash flow that is recovered at the end of six years.
Question 61 pts
CBN Products, Inc. is considering to invest in one of two projects. Both projects have a net present value of
P25,000; however Project #1 requires an initial investment of P700,000 while Project #2 requires an initial
investment of P300,000. Based on this information, which of the following statements is true?
There is not enough information to determine the profitability index of either project GDOCS CH
Project #1 will have a higher profitability index
Project #2 will have a higher profitability index
Both project will have the same profitability index

7
A project that has a positive NPV discounted at a rate of 15% would have an IRR of
10%
0%
More than 15% study.com gdocs
Less than 15%

Question 81 pts
The internal-rate-of-return method assumes that project funds are reinvested at the:
rate of return earned on the project. Quizlet,gdocs
cost of debt capital.
rate of earnings growth (REG).
hurdle rate.
PreviousNext
Question 91 pts
Several proposed capital projects which are economically acceptable may have to be ranked due to constraints
in financial resources. In ranking these projects, which is the least pertinent statement?
If the internal rate of return method is used in the capital rationing problem, the higher the rate, the better the
project.
A ranking procedure on the basis of quantitative criteria may be established by specifying a minimum desired
rate of return, which rate is used in calculating the net present value of each project.
If the net present value method is used, the profitability index is calculated to rank the projects. The lower the
index, the better the project. Coursehero, GDOCS
In selecting the required rate of return, one may either calculate the organization’s cost of capital or use a rate
generally acceptable in the industry.
Question 101 pts
When ranking two mutually exclusive investments with different initial amounts, management should give first
priority to the project
Whose net after-tax flows equal the initial investment.
That has the greater profitability index. CH GDOCS
That has the greater accounting rate of return.
That generates cash flows for the longer period of time.

Question 111 pts
The AA Company, a calendar year company, purchased a new machine for P280,000 on January 1.
Depreciation for tax purposes will be P35,000 annually for eight years. The accounting (book value) rate of
return (ARR) is expected to be 15% on the initial increase in required investment. On the assumption of a
uniform cash inflow, this investment is expected to provide annual cash flow from operations, net of income
taxes, of
77000 CH cha jho
Question 121 pts
An investment in a certain project can be recovered in 10 years. The investment has no salvage value. If the
net income before taxes from this investment is P10,000 annually and income taxes are 20% each year, how
much is the cost of investment if depreciation charges are P10,000 annually?
180000 bartleby cha jho
Question 131 pts
The AA Corporation wants to purchase a new machine for its factory operations at a cost of P950,000. The
investment is expected to generate P350,000 in annual cash flows for a period of four years. The required rate
of return is 14%. The old machine can be sold for P50,000. The machine is expected to have zero value at the
end of the four-year period.
The present value of annuity of 1 at 14% for 4 periods is 2.913, and the present value of 1 end of each period
are:
Period 1 0.877
Period 2 0.769
Period 3 0.675
Period 4 0.592

What is the net present value of the investment? Would the company want to purchase the new machine?
Income taxes are not considered.
326,750; no
1,019,550; yes
119,550; yes Chegg cha
69,550; no
PreviousNext
Question 141 pts
The AA Corporation has recently evaluated a proposal to invest in cost-reducing production technology.
According to the evaluation, the project would require an initial investment of P17,166 and would provide
equal annual cost savings for five years. Based on a 10 percent discount rate, the project generates a net
present value of P1,788. The project is not expected to have any salvage value at the end of its five-year life.

What is the project's expected internal rate of return?
13%
14% CH cha jho charese
11%
10%
PreviousNext
Question 151 pts
AA Car Co. is considering the acquisition of a new armored truck. The truck is expected to cost P300,000. The
company's discount rate is 12 percent. The firm has determined that the truck generates a positive net present
value of P17,022. However, the firm is uncertain as to whether it has determined a reasonable estimate of the
salvage value of the truck. In computing the net present value, the company assumed that the truck would be
salvaged at the end of the fifth year for P60,000. What expected salvage value for the truck would cause the
investment to generate a net present value of P0? Ignore taxes.
30,000 cH
42,978
55,278
Question 161 pts
Key Corp. plans to replace a production machine that was acquired several years ago. Acquisition cost is
P450,000 with salvage value of P50,000. The machine being considered is worth P800,000 and the supplier is
willing to accept the old machine at a trade-in value of P60,000. Should the company decide not to acquire
the new machine, it needs to repair the old one at a cost of P200,000. Tax-wise, the trade-in transaction will
not have any implication but the cost to repair is tax-deductible. The effective corporate tax rate is 35% of net
income subject to tax. For purposes of capital budgeting, the net investment in the new machine is
610000 studocu CH BARTLEBY

Question 171 pts
The AA Co. is considering an investment in a project that generates a profitability index of 1.3. The present
value of the cash inflows on the project is P44,000. What is the net present value of this project?
57,200
33,846
10,154 ch BARTLEBY jho
13,200
Question 181 pts

What is the expected annual cost savings of the project?
5000 CH cha
Question 191 pts
AA, Inc., is considering a 10-year capital investment project with forecasted revenues of P40,000 per year and
forecasted cash operating expenses of P29,000 per year. The initial cost of the equipment for the project is
P23,000, and AA expects to sell the equipment for P9,000 at the end of the tenth year. The equipment will be
depreciated over 7 years. The project requires a working capital investment of P7,000 at its inception and
another P5,000 at the end of Year 5. Assuming a 40% marginal tax rate, the expected net cash flow from the
project in the tenth year is
24000
CH jho
Question 201 pts
The following data pertain to AA Corp., whose management is planning to purchase an automated tanning
equipment.
1. Economic life of equipment – 8 years.

2. Disposal value after 8 years – nil.
3. Estimated net annual cash inflows for each of the 8 years – P81,000.
4. Time-adjusted internal rate of return – 14%
5. Cost of capital of AA Corp – 16%
6. The table of present values of P1 received annually for 8 years has these factors: at 14% =
4.639, at 16% = 4.344
7. Depreciation is approximately P46,970 annually.

Find the required increase in annual cash inflows in order to have the time-adjusted rate of return
approximately equal the cost of capital.
5,871
5,501 studocu
6,501
4,344
Previous
GDOCS
Sure na sagot = green
Di sure = yellow
Penge sagot = red
AA, Inc.
Accounting rate of return based on average investment = %
Assuming 40% marginal tax rate, the expected net cash flow from the project in the 10th yr =
Accounting rate of return based on initial investment of 100k in management decrease its selling price of the
new product by 10% = %
The AA Corporation
Expected annual cost savings of the project = 5,000
Project’s expected internal rate of return = %
Net present value of the investment = 199,550, yes (galing chegg) 119,550 po ba ‘to or 199,550 po talaga?
The AA Company
Annual cash flow from operations, net of income taxes, of = 77,000
Key Corp
Net investment in the new machine = 610,000 (galing studocu)
much is the cost of investment if depreciation charges are P10,000 annually?
=
AA, Inc., is considering a 10-year capital investment project with forecasted revenues of P40,000 per year
and forecasted cash operating expenses of P29,000 per year. The initial cost of the equipment for the project
is P23,000, and AA expects to sell the equipment for P9,000 at the end of the tenth year. The equipment will
be depreciated over 7 years. The project requires a working capital investment of P7,000 at its inception and
another P5,000 at the end of Year 5. Assuming a 40% marginal tax rate, the expected net cash flow from the
project in the tenth year is??
ANSWER: 24000
http://www.accountingmthe aa cqs.com/garfield-inc-is-considering-a-10-year-capital-inve-mcq-2618
investment is expected to generate P350,000 in annual cash flows for a period of four years. The required
rate of return is 14%. The old machine can be sold for P50,000. The machine is expected to have zero value
at the end of the four-year period.
are:
Period 1 0.877
Period 2 0.769
Period 3 0.675
Period 4 0.592

AA Car Co. is considering the acquisition of a new armored truck. The truck is expected to cost P300,000.
The company's discount rate is 12 percent. The firm has determined that the truck generates a positive net
present value of P17,022. However, the firm is uncertain as to whether it has determined a reasonable
estimate of the salvage value of the truck. In computing the net present value, the company assumed that the
truck would be salvaged at the end of the fifth year for P60,000. What expected salvage value for the truck
would cause the investment to generate a net present value of P0? Ignore taxes.
0
30,000
42,978
55,278
equipment.

6. The table of present values of P1 received annually for 8 years has these factors: at 14% = 4.639,
at 16% = 4.344
4,344
5,871
6,501
5,501

AA Inc. is planning to produce a new product. To do this, it is necessary to acquire a new equipment that will
cost the company P100,000. The estimated life of the new equipment is five years with no salvage value.
The estimated revenue and costs based on expected sales of P10,000 units per year are:
Sales @ P10.00 per unit P100,000
Costs @ P8.00 per unit 80,000
The accounting rate of return based on initial investment is 20%

What will be the accounting rate of return based on initial investment of P100,000 if management decrease its
selling price of the new product by 10%?
A. 10%
B. 20%
C. 15%
D. 5%
The AA Company, a calendar year company, purchased a new machine for P280,000 on January 1.
Depreciation for tax purposes will be P35,000 annually for eight years. The accounting (book value) rate of
return (ARR) is expected to be 15% on the initial increase in required investment. On the assumption of a
uniform cash inflow, this investment is expected to provide annual cash flow from operations, net of income
taxes, of
equal annual cost savings for five years. Based on a 10 percent discount rate, the project generates a net pr\
esent value of P1,788. The project is not expected to have any salvage value at the end of its five-year life.

What is the expected annual cost savings of the project? = 5,000 coursehero
aa, inc.
AA Car Co. expected salvage value (ignore taxes) 30 000
 Solved Cramden Armored Car Co. is considering the | Chegg.com
AA, Inc., is contemplating a project that costs P180,000. Expectations are that annual cash revenues will be
P70,000 and annual expenses (including depreciation) will total P30,000. The project has a six-year useful life
and a residual value of P30,000. Assume Seattle Inc. uses straight line method of depreciation.
The accounting rate of return based on average investment for the project is
https://www.chegg.com/homework-help/questions-and-answers/question-30-1-pts-abra-inc-contemplating-
project-costs-p180-000-expectations-annual-cash-r-q64047686 paopen plzt
Several proposed capital projects which are economically acceptable may have to be ranked due to
constraints in financial resources. In ranking these projects, which is the least pertinent statement?
Ans: If the net present value method is used, the profitability index is calculated to rank the projects. The
lower the index, the better the project. - saan nakuha to???
Evaluation of options
Option A is wrong because the establishment of a ranking procedure based on quantitative criteria with a desired rate
of return is an important aspect relevant to ranking of projects.
Option C is wrong because internal rate of return is an important method to rank projects.
Option D is wrong because net present value method and profitability index are important methods to rank projects.
Answer
The selection of required rate of return is only one step of the ranking procedures. It is a secondary item while
considering ranking projects.
Hence, the answer is option "B. In selecting the required rate of return, one may either calculate the organization’s
cost of capital or use a rate generally acceptable in the industry." - BARTLEBY

Key Corp. plans to replace a production machine that was acquired several years ago. Acquisition cost is
P450,000 with salvage value of P50,000. The machine being considered is worth P800,000 and the supplier
is willing to accept the old machine at a trade-in value of P60,000. Should the company decide not to acquire
the new machine, it needs to repair the old one at a cost of P200,000. Tax-wise, the trade-in transaction will
not have any implication but the cost to repair is tax-deductible. The effective corporate tax rate is 35% of net
income subject to tax. For purposes of capital budgeting, the net investment in the new machine is
610,000
 CBN Products, Inc. is considering to invest in one of two projects. Both projects have a net present
value of P25,000; however Project #1 requires an initial investment of P700,000 while Project #2
requires an initial investment of P300,000. Based on this information, which of the following
statements is true?
 Project #2 will have a higher profitability index - Chegg
 Project #1 will have a higher profitability index
 There is not enough information to determine the profitability index of either project - Coursehero
 Both project will have the same profitability index

discounts cash flows at a minimum desired rate of return.
The basis for measuring the cost of capital derived from bonds and preferred stock, respectively, is the -
after-tax rate of interest for bonds and stated annual dividend rate for preferred stock.

A project that has a positive NPV discounted at a rate of 15% would have an IRR of

More than 15%

?????/
Which of the following payback methods considers the salvage value in its basic computations - bail out
payback
A project’s net present value, ignoring income tax considerations, is normally affected by the - proceeds from
the sale of the asset to be replaced
priority to the project - that has the greater profitability index
Which of the following capital budgeting techniques may potentially ignore part of a project's relevant cash
flows? - payback period
With regard to capital investment, net cash inflow is equal to the - net increase in cash receipts over cash
payments
The internal-rate-of-return method assumes that project funds are reinvested at the: rate of return earned on
the project
Which of the following is an advantage of the accounting rate of return method of evaluating investment
returns? - the technique corresponds to the measure that is often used to evaluate performance.
In capital expenditures decisions, the following are relevant in estimating operating costs except - historical
costs
much is the cost of investment if depreciation charges are P10,000 annually? 180,000
Mahlin Movers, Inc. is planning to purchase equipment to make its operations more efficient. This equipment
has an estimated useful life of six years. As part of this acquisition, a P150,000 investment in working capital
is required. In a discounted cash flow analysis, this investment in working capital should be
Treated as an immediate cash outflow that is recovered at the end of six years.
Treated as a recurring annual cash flow that is recovered at the end of six years.
Disregarded because no cash is involved.
Amortized over the useful life of the equipment.
The internal-rate-of-return method assumes that project funds are reinvested at the:
cost of debt capital

rate of return earned on the project.
rate of earnings growth (REG).
hurdle rate.
priority to the project
-That has the greater profitability index.
-That has the greater accounting rate of return.
-That generates cash flows for the longer period of time.-
-Whose net after-tax flows equal the initial investment.
Which of the following capital budgeting techniques may potentially ignore part of a project's relevant cash
flows?
profitability index
internal rate of return
net present value
payback period
Which of the following payback methods considers the salvage value in its basic computations?
Traditional payback
Present value payback
Discounted payback
Bail out payback
In capital expenditures decisions, the following are relevant in estimating operating costs except
Future costs.
Cash costs.
Historical costs.
Differential costs.
The net present value method of evaluating proposed investments

discounts cash flows at a minimum desired rate of return.
anking two mutually exclusive investments with different initial amounts, management should give first priority
to the pro
When rject
A. That generates cash flows for the longer period of time.
B. Whose net after-tax flows equal the initial investment.
C. That has the greater accounting rate of return.
D. That has the greater profitability index.
Which of the following is an advantage of the accounting rate of return method of evaluating
investment returns?
a. The technique considers depreciation.

b. The technique corresponds to the measure that is often
used to evaluate performance. - quizlet i think tama po, same answer lang from accountingmcqs
c. The technique considers the time value of money.
d. The technique considers the risk of the investment.
The basis for measuring the cost of capital derived from bonds and preferred stock, respectively, is the
pre-tax rate of interest for bonds and stated annual dividend rate less the expected earnings per share for
preferred stock.
after-tax rate of interest for bonds and stated annual dividend rate less the expected earnings per share for
preferred stock.
after-tax rate of interest for bonds and stated annual dividend rate for preferred stock.
pre-tax rate of interest for bonds and stated annual dividend rate for preferred stock.
With regard to a capital investment, net cash inflow is equal to the

net increase in cash receipts over cash payments - quizlet
The net present value (NPV) method of investment project analysis assumes that the project's cash flows are
reinvested at the
Discount rate used in the NPV calculation - quizlet
investment is expected to generate P350,000 in annual cash flows for a period of four years. The required
rate of return is 14%. The old machine can be sold for P50,000. The machine is expected to have zero value
at the end of the four-year period.
are:
Period 1 0.877
Period 2 0.769
Period 3 0.675
Period 4 0.592
326,750; no
69,550; no
1,019,550; yes
119,550; yes
C Corp. faces a marginal tax rate of 35 percent. One project that is currently under evaluation has a cash flow
in the fourth year of its life that has a present value of P10,000 (after-tax). C Corp. assumes that all cash flows
occur at the end of the year and the company uses 11 percent as its discount rate. What is the pre-tax
amount of the cash flow in year 4? (Round to the nearest peso.)
9,868
43,375
15,181
23,356
AA Corporation bought a piece of machinery. Selected data is presented below:
Useful life 6 years
Yearly net cash inflow P45,000
Salvage value -0-
Internal rate of return 18%
Cost of capital 15%
The initial cost of the machinery was
157,392
170,303
165,812
174,992
The AA Co. is considering an investment in a project that generates a profitability index of 1.3. The present
value of the cash inflows on the project is P44,000. What is the net present value of this project?
57,200
33,846
10,154 coursehero
13,200
equipment.

6. The table of present values of P1 received annually for 8 years has these factors: at 14% = 4.639,
at 16% = 4.344
6,501
4,344
5,501
5,871
What is the project's expected internal rate of return? https://www.scribd.com/document/513905480/capital-
budgeting-1st-part pa open. Done na po 10% sya - thank you very much you know that I love chicken nuggets
by arcie lappay
11%
13%
14%
10%

AA Corporation has recently evaluated a proposal to invest in cost-reducing production technology. According
to the evaluation, the project would require an initial investment of P17,166 and would provide equal annual
cost savings for five years. Based in a 10 percent discount rate, the project generates a net present value of
P1,788. The project is not expected to have any salvage value at the end of its five-year life. What is the
expected annual cost savings of the project?
https://www.coursehero.com/file/p1oe00l/According-to-the-evaluation-the-project-would-require-an-initial-
investment-of/
https://www.chegg.com/homework-help/questions-and-answers/6-duval-corporation-recently-evaluated-
proposal-invest-cost-reducing-production-technology-q61908559 - paopen po

Diagnostic Examination For Capital Budgeting

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A project’s net present value, ignoring income tax considerations, is normally affected by the

Group of answer choices

Carrying amount of the asset to be replaced by the project.

Amount of annual depreciation on fixed assets used directly on the project.

Proceeds from the sale of the asset to be replaced. Quizlet CH GDOCS

Amount of annual depreciation on the asset to be replaced.

sum of all future revenues from the investment.

net increase in cash receipts over cash payments.

cost savings resulting from the investment.

net increase in cash payments over cash receipts. CH quizlet chegg

Bail out payback gdocs internet, CH bartleby

Present value payback

Historical costs. GDOCS studocu

Amortized over the useful life of the equipment.

Project #1 will have a higher profitability index

Project #2 will have a higher profitability index

Both project will have the same profitability index

More than 15% study.com gdocs

Less than 15%

rate of return earned on the project. Quizlet,gdocs

cost of debt capital.

rate of earnings growth (REG).

Whose net after-tax flows equal the initial investment.

That has the greater profitability index. CH GDOCS

That has the greater accounting rate of return.

That generates cash flows for the longer period of time.

119,550; yes Chegg cha

14% CH cha jho charese

610000 studocu CH BARTLEBY

10,154 ch BARTLEBY jho

1. Economic life of equipment – 8 years.

1. Economic life of equipment – 8 years.

Sales @ P10.00 per unit P100,000

Costs @ P8.00 per unit 80,000

The accounting rate of return based on initial investment is 20%

Group of answer choices

Group of answer choices

cost of debt capital

Group of answer choices

Group of answer choices

Group of answer choices

The net present value method of evaluating proposed investments

a. The technique considers depreciation.

With regard to a capital investment, net cash inflow is equal to the

Group of answer choices

Group of answer choices

AA Corporation bought a piece of machinery. Selected data is presented below:

Useful life 6 years

Yearly net cash inflow P45,000

Salvage value -0-

Internal rate of return 18%

Cost of capital 15%

The initial cost of the machinery was

Group of answer choices

Group of answer choices

1. Economic life of equipment – 8 years.

Group of answer choices

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