Download ACC 350 Test 6 Review (Questions & Answers) and more Exams Accounting in PDF only on Docsity! A post-audit in capital budgeting is a comparison of the actual results of capital investments with the projected results. True Lora Corporation will receive $10,000 a year at the end of each of the next five years. Using a discount rate of 14%, the present value of the receipts can be stated as ________. PV = $10,000 (Ordinary Annuity PV factor, i = 14%, n = 5) Landmark Prints is considering an investment in new equipment costing $520,000. The equipment will be depreciated on a straight-line basis over a five-year life and is expected to generate net cash inflows of $128,000 the first year, $160,000 the second year, and $154,000 every year thereafter until the fifth year. What is the payback period for this investment? The residual value is zero. (Round your answer to two decimal places.) 3.51 years Sensitivity analysis is a technique that ________. Shows how results differ when underlying assumptions change Caliber Lawnmowers is considering the purchase of a new machine costing $804,000. The company's management is estimating that the new machine will generate additional cash flows of $180,000 a year for ten years and have a residual value of $62,000 at the end of ten years. What is the machine's payback period? (Round your answer to two decimal places.) 4.47 years Both the payback and the accounting rate of return methods focus on cash flows that an asset generates. False The payback and accounting rate of return (ARR) methods are suitable for investments with a relatively short time span. True Net cash inflows from a capital investment arise from an increase in revenues, a decrease in expenses, or both. True The net present value of future cash inflows received in earlier years is higher than future cash inflows received in later years. True When evaluating a potential investment, managers should use only one measure for making a sound investment decision. False Zane Set Designs Company has received an award which entitles it to receive annual payments of $10,000 at the end of each year for the next ten years. Which of the following is used to calculate today's value of this award? Present Value of an Ordinary Annuity of $1 The fact that invested cash earns income over time is called the time value of money. True The last step in the capital budgeting process is control, which compares the actual results with the projected results. These comparisons are known as ________. Post-audits The discount rate used in a net present value analysis is the ________. Required rate of return or the hurdle rate Which of the following two methods are typically used for initial screening of investments, rather than for detailed, in-depth analysis? Payback and accounting rate of return Capital asset An operational asset used for a long period of time. Capital investment The acquisition of a capital asset. Capital budgeting The process of planning to invest in long-term assets in a way that returns the most profitability to the company. Capital rationing The process of ranking and choosing among alternative capital investments based on the availability of funds. Post-audit The comparison of the actual results of capital investments to the projected results. Payback Is a capital investment analysis method that measures the length of time it takes to recover, in net cash inflows, the cost of the initial investment.
