charter oak acc102 week 13 test part 1

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·

1. Which of the
following is not an important financial consideration in capital budgeting?

Answer

·
Question 2

0 out of 5
points

2. When using the
net present value method for evaluating an investment, an increase in the
required rate of return will:

Answer

·
Question 3

5 out of 5
points

3. Which method of
project selection gives consideration to the time value of money in a capital
budgeting decision?

Answer

·
Question 4

5 out of 5
points

4. Stanley Company
is considering the possibility of investing $800,000 in a special project. This venture will return $200,000 per
year for 12 years in after tax cash flows. Depreciation
on the project will be $100,000 per year using straight-line depreciation. The payback period for the project
is:

Answer

·
Question 5

5 out of 5
points

Use the following to answer question 5:

Dover Corporation is evaluating a proposal to
invest in a machine costing $72,000. The
machine has an estimated useful life of ten years, and an estimated salvage
value of $10,000. The
machine will increase the company’s net income by approximately $6,000 per
year. All
revenue and expenses other than depreciation will be received and paid in
cash.

5. Refer to the
information above. The
payback period of the machine is:

Answer

·
Question 6

5 out of 5
points

Use the following to answer questions 6-7:

London Corporation is considering investing
$40,000 in equipment to produce a new product. The
useful service life of the equipment is estimated to be ten years, with no
salvage value. Straight-line depreciation is used. The company estimates that production
and sale of the new product will increase net income by $6,000 per year.

6. Refer to the
information above. The
payback period of this investment is:

Answer

·
Question 7

5 out of 5
points

7. Refer to the
information above. The
expected rate of return on average investment in this equipment is:

Answer

·
Question 8

0 out of 5
points

Use the following to answer questions 8-9:

Buckley Company is considering an investment of
$760,000 in heavy equipment which will enable the company to be more
competitive in the construction industry. The
useful service life of the equipment is estimated to be 10 years, with
$60,000 salvage value. Straight-line
depreciation is used. The
company estimates that net income will increase by $82,000 per year as a
result of the company’s ability to handle a wider range of projects with the
new equipment.

8. Refer to the
information above. The
payback period for this investment is approximately:

Answer

·
Question 9

5 out of 5
points

9. Refer to the
information above. The
expected rate of return on average investment will be approximately:

Answer

·
Question 10

5 out of 5
points

Use the following to answer questions 10 – 12:

Downhill Gear is planning to expand its product
line, which requires investment of $360,000 in special-purpose machinery. The machinery has a useful life of
six years and no salvage value. The
estimated annual results of offering the new products are as follows:

Revenue……………………………………………………………………..

$400,000

Expenses
(including straight-line depreciation)……………………..

(380,000

)

Increase
in net income…………………………………………………..

$ 20,000

All revenue from the new products and all
expenses (except depreciation) will be received or paid in cash in the same
period as recognized for accounting purposes.

10. Refer to the
information above. The
payback period for this proposed investment is:

Answer

·
Question 11

5 out of 5
points

11. Refer to the
information above. The
return on average investment for this proposed investment is:

Answer

·
Question 12

5 out of 5
points

12. Refer to the
information above. Compute
the net present value of this proposed investment, using a discount rate of
12%. (An
annuity table shows that the present value of $1 received annually for six
years, discounted at 12%, is 4.111.)

Answer

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