ACC 560 Week 9 Quiz – Strayer NEW

ACC 560 Week 9 Quiz – Strayer NEW
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Week 9 Quiz 8: Chapter 12

TRUE-FALSE STATEMENTS
1. Capital budgeting decisions usually involve large investments and often have a significant impact on a company's future profitability.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Budget Preparation

2. The capital budgeting committee ultimately approves the capital expenditure budget for the year.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Budget Preparation

3. For purposes of capital budgeting, estimated cash inflows and outflows are preferred for inputs into the capital budgeting decision tools.

Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Budget Preparation

4. The cash payback technique is a quick way to calculate a project's net present value.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Budget Preparation

5. The cash payback period is computed by dividing the cost of the capital investment by the  net annual cash inflow.

Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Decision Analysis

6. The cash payback method is frequently used as a screening tool but it does not take into consideration the profitability of a project.

Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Decision Analysis

7. The cost of capital is a weighted average of the rates paid on borrowed funds, as well as on funds provided by investors in the company's stock.

Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

8. Using the net present value method, a net present value of zero indicates that the project would not be acceptable.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

9. The net present value method can only be used in capital budgeting if the expected cash flows from a project are an equal amount each year.

Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

10. By ignoring intangible benefits, capital budgeting techniques might incorrectly eliminate projects that could be financially beneficial to the company.

Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Economics

11. To avoid accepting projects that actually should be rejected, a company should ignore intangible benefits in calculating net present value.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Decision Analysis

12. One way of incorporating intangible benefits into the capital budgeting decision is to project conservative estimates of the value of the intangible benefits and include them in the NPV calculation.

Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Decision Analysis

13. The profitability index is calculated by dividing the total cash flows by the initial investment.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

14. The profitability index allows comparison of the relative desirability of projects that require differing initial investments.

Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Quantitative Methods

15. Sensitivity analysis uses a number of outcome estimates to get a sense of the variability among potential returns.

Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Decision Analysis

16. A well-run organization should perform an evaluation, called a post-audit, of its investment projects before their completion.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Performance Measurement

17. Post-audits create an incentive for managers to make accurate estimates, since managers know that their results will be evaluated.

Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Performance Measurement

18. A post-audit is an evaluation of how well a project's actual performance matches the projections made when the project was proposed.

Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Performance Measurement

19. The internal rate of return method is, like the NPV method, a discounted cash flow technique.

Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Business Applications

20. The interest yield of a project is a rate that will cause the present value of the proposed capital expenditure to equal the present value of the expected annual cash inflows.

Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Performance Measurement

21. Using the internal rate of return method, a project is rejected when the rate of return is greater than or equal to the required rate of return.

Ans: LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Performance Measurement

22. Using the annual rate of return method, a project is acceptable if its rate of return is greater than management's minimum rate of return.

Ans: LO: 8, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Performance Measurement

23. The annual rate of return method requires dividing a project's annual cash inflows by the economic life of the project.

Ans: LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Performance Measurement

24. A major advantage of the annual rate of return method is that it considers the time value of money.

Ans: LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Performance Measurement

25. An advantage of the annual rate of return method is that it relies on accrual accounting numbers rather than actual cash flows.

Ans: LO: 8, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Performance Measurement

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.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Budget Preparation


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.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Budget Preparation

28. Most of the capital budgeting methods use
a. accrual accounting numbers.
b. cash flow numbers.
c. net income.
d. accrual accounting revenues.

Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem Solving/Decision Making, IMA: Budget Preparation