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.
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