11 May Question41. Barney’s Bagels invested in a new oven for $12
Question
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%.
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