Question 41. Barney’s Bagels invested in a new oven for $12,000. The oven re

41. Barney’s Bagels invested in a new oven for $12,000. The oven reduced the amount of time for baking which increased production and

sales for five years by the following amounts of cash inflows:

Using the averaging method, the payback period for the investment in the oven would be:

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A. 5.0 years.

B. 2.4 years.

C. 2.0 years.

D. 1.7 years.

42. Which of the following statements concerning payback analysis is true?

A. An investment with a longer payback is preferable to an investment with a shorter payback.

B. The payback method ignores the time value of money concept.

C. The payback method and the unadjusted rate of return are different approaches that will consistently lead to the same conclusion.

D. All of the other answers are correct.

43. Which of the following doesnotrepresent an advantage of the unadjusted rate of return over the payback method for evaluating capital

projects?

A. The unadjusted rate of return method considers the investment’s profitability.

B. The unadjusted rate of return method measures the recovery of the initial investment in the project.

C. The unadjusted rate of return is a percentage that can be compared to a stated hurdle rate.

D. None of the above represents an advantage.

44. Cash outflows generated by capital investments include all of the following except:

A. purchase discounts

B. transportation costs

C. increased operating expenses

D. increase in the required amount of working capital

45. Which capital budgeting technique defines returns in terms of income instead of cash flows?

A. The unadjusted rate of return method

B. The internal rate of return technique

C. The net present value technique

D. The payback period

46. Eddy Company has an opportunity to purchase an asset that will cost the company $25,000. The asset is expected to add $7,500 per year

to the company’s net income. Assuming the asset has a five-year useful life and zero salvage value, the unadjusted rate of return based on

the average investment will be:

A. 60%.

B. 30%.

C. 15%.

D. none of the above answers are correct.

47. Finebaum Company plans to invest in a new operating plant that is expected to cost $600,000. The projected incremental income from the

investment is as follows:

The unadjusted rate of return on the initial investment would be approximately:

A. 5.0%.

B. 6.7%.

C. 13.3%.

D. 15.0%.

48. Select theincorrectstatement regarding postaudits of capital investment decisions.

A. A postaudit should be conducted at the end of the project.

B. The postaudit helps management determine whether a project that had been accepted should have been rejected.

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C. A postaudit is not necessary for a capital investment selected using a technique that considers the time value of money.

D. The goal of a postaudit is to provide feedback that can be used to improve the accuracy of future capital investment decisions.

49. The purposes of the postaudit for capital investments include all of the followingexcept:

A. continuous improvement.

B. punishment for poor capital investment decisions.

C. determining whether the project generated the results expected.

D. ensuring that managers closely scrutinize capital investment decisions.

50. The review of a capital budgeting decision to determine whether a project was accepted that should have been rejected is referred to as:

A. an audit.

B. a preaudit.

C. a postaudit.

D. a capital review.

51. Six years ago, Torrence Hardware paid a contractor $45,000 to expand the store. At that time, the company calculated a net present value

of about $6,000 for the expansion. Now, the company believes that the investment increased annual cash inflows by $8,000 per year for

each of the six years. Torrence has a desired rate of return of 10%. What was the net present value actually achieved for this capital

investment? (Do not round your PV factors and intermediate calculations. Round to the nearest dollar.)

A. ($10,158)

B. ($3,000)

C. $34,842

D. $(9,207)

52. Lane Company is considering purchasing a capital investment that is expected to provide annual cash inflows of $10,000 per year for 3

years. Assuming that Lane’s required rate of return is 8%, what is the present value of these cash inflows? (Do not round PV factors and

intermediate calculations. Round your final answer to the nearest dollar.)

A. $25,771

B. $24,869

C. $33,121

D. $24,018

53. Phoenix Company is considering purchasing a capital investment that is expected to provide annual cash inflows of $15,000 per year for 3

years. Assuming that the required rate of return is 10%, what is the present value of these cash infl

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