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HW-613 MCQs
1. Done on a regular basis, relevant cost pricing in special order decisions can erode normal pricing policies and lead to: (Points : 2)
Overconfidence in decision-making.
A loss in the firm's profitability.
Conflicting goals between management and sales personnel.
A cost leadership strategy.
Maximization of resources.
2. When the internal rate of return (IRR) method and the net present value (NPV) method do not yield the same recommendation for the same investment project, the technique normally selected is: (Points : 2)
IRR, because all reinvestment of funds occurs at the rate of the cost of capital and because it takes into consideration the relative size of the initial investment.
NPV, because it takes into consideration the relative size of the initial investment.
IRR, because all reinvestment of funds occurs at the discount rate that will make the NPV of the project equal to zero.
NPV, because all reinvestment of funds occurs at the discount rate that will make the NPV of the project equal to zero.
3. Which of the following is not a characteristic of the payback method for making capital budgeting decisions? (Points : 2)
It is easy to calculate and comprehend.
It focuses primarily on liquidity, rather than profitability of an investment project.
It can be considered a rough measure of risk.
It considers returns over the entire life of the project.
It requires estimates of after-tax cash inflows and after-tax cash outflows.
4. Which one of the following is correct for determining relevant costs? (Points : 2)
Differential.
Integrative.
Long-term focus.
Subjective.
Opportunistic.
5. A truck, costing $25,000 and uninsured, was wrecked the very first day it was used. It can either be disposed of for $5,000 cash and be replaced with a similar truck costing $27,000, or rebuilt for $20,000 and be brand new as far as operating characteristics and looks are concerned. The best choice provides a net savings of: (Points : 2)
$2,000.
$5,000.
$7,000.
$12,000.
The correct answer is $22,000
= $27,000 - $5,000
6. The excess of the present value of future cash flows over the initial investment outlay for a project is the: (Points : 2)
Internal rate of return (IRR) of the project.
Modified internal rate of return (MIRR) on the project.
Book (accounting) rate of return for the project.
Net present value (NPV) of the project.
Modified internal rate of return (MIRR) of the project.
7. The opportunity cost of making a component part in a factory with excess capacity for which there is no alternative use is: (Points : 2)
The variable manufacturing cost of the component.
The total manufacturing cost of the component.
The total variable cost of the component.
The fixed manufacturing cost of the component.
Zero.
8. The value chain analysis used in connection with the make or buy decision often leads a firm to make use of: (Points : 2)
Activity-based costing.
Cost-volume profit analysis.
Outsourcing activities.
Relevant cost-based pricing.
9. Which one of the following is most descriptive of strategic analysis? (Points : 2)
Quantitative.
Customer focus.
Short-term focus.
Individual product focus.
Not linked to the firm's strategy.
10. Which one of the following capital budgeting decision models consists of dividing the total initial investment outlay by annual after-tax cash inflows (when such inflows are assumed equal over time)? (Points : 2)
Profitability index.
Payback period.
Book (accounting) rate of return.
Internal rate of return.
Adjusted payback period.
11. The capital budgeting method(s) that is (are) most likely to provide consistency between data for capital budgeting and data for subsequent performance evaluation is (are) the: (Points : 2)
Payback period.
Discounted cash flow (DCF) methods.
Book (i.e., accounting) rate of return method.
Discounted payback period.
Cash-flow proxy method.
12. Which one of the following is the estimated rate (i.e., percentage) that makes the discounted present value of future cash flows equal to the initial investment? (Points : 2)
Weighted-average cost of capital (WACC).
Modified internal rate of return (MIRR).
Book (accounting) rate of return.
Internal rate of return (IRR).
Accounting rate of return (ARR), after tax.
13. To make a special order decision, managers need critical information about all the following except: (Points : 2)
Relevant costs.
Prior period operating costs.
Any opportunity costs.
The strategic, competitive environment of the firm
14. Omaha Plating Corporation is considering purchasing a machine for $1,500,000. The machine will generate a constant after-tax income of $100,000 per year for 15 years. The firm will use straight-line (SL) depreciation for the new machine over 10 years with no residual value. What is the payback period for the new machine, under the assumption that cash inflows occur evenly throughout the year? (Points : 2) 4 years. 5 years. 6 years. 10 years. 15 years.
Answer will be sent by email as attachment.
Overconfidence in decision-making.
A loss in the firm's profitability.
Conflicting goals between management and sales personnel.
A cost leadership strategy.
Maximization of resources.
2. When the internal rate of return (IRR) method and the net present value (NPV) method do not yield the same recommendation for the same investment project, the technique normally selected is: (Points : 2)
IRR, because all reinvestment of funds occurs at the rate of the cost of capital and because it takes into consideration the relative size of the initial investment.
NPV, because it takes into consideration the relative size of the initial investment.
IRR, because all reinvestment of funds occurs at the discount rate that will make the NPV of the project equal to zero.
NPV, because all reinvestment of funds occurs at the discount rate that will make the NPV of the project equal to zero.
3. Which of the following is not a characteristic of the payback method for making capital budgeting decisions? (Points : 2)
It is easy to calculate and comprehend.
It focuses primarily on liquidity, rather than profitability of an investment project.
It can be considered a rough measure of risk.
It considers returns over the entire life of the project.
It requires estimates of after-tax cash inflows and after-tax cash outflows.
4. Which one of the following is correct for determining relevant costs? (Points : 2)
Differential.
Integrative.
Long-term focus.
Subjective.
Opportunistic.
5. A truck, costing $25,000 and uninsured, was wrecked the very first day it was used. It can either be disposed of for $5,000 cash and be replaced with a similar truck costing $27,000, or rebuilt for $20,000 and be brand new as far as operating characteristics and looks are concerned. The best choice provides a net savings of: (Points : 2)
$2,000.
$5,000.
$7,000.
$12,000.
The correct answer is $22,000
= $27,000 - $5,000
6. The excess of the present value of future cash flows over the initial investment outlay for a project is the: (Points : 2)
Internal rate of return (IRR) of the project.
Modified internal rate of return (MIRR) on the project.
Book (accounting) rate of return for the project.
Net present value (NPV) of the project.
Modified internal rate of return (MIRR) of the project.
7. The opportunity cost of making a component part in a factory with excess capacity for which there is no alternative use is: (Points : 2)
The variable manufacturing cost of the component.
The total manufacturing cost of the component.
The total variable cost of the component.
The fixed manufacturing cost of the component.
Zero.
8. The value chain analysis used in connection with the make or buy decision often leads a firm to make use of: (Points : 2)
Activity-based costing.
Cost-volume profit analysis.
Outsourcing activities.
Relevant cost-based pricing.
9. Which one of the following is most descriptive of strategic analysis? (Points : 2)
Quantitative.
Customer focus.
Short-term focus.
Individual product focus.
Not linked to the firm's strategy.
10. Which one of the following capital budgeting decision models consists of dividing the total initial investment outlay by annual after-tax cash inflows (when such inflows are assumed equal over time)? (Points : 2)
Profitability index.
Payback period.
Book (accounting) rate of return.
Internal rate of return.
Adjusted payback period.
11. The capital budgeting method(s) that is (are) most likely to provide consistency between data for capital budgeting and data for subsequent performance evaluation is (are) the: (Points : 2)
Payback period.
Discounted cash flow (DCF) methods.
Book (i.e., accounting) rate of return method.
Discounted payback period.
Cash-flow proxy method.
12. Which one of the following is the estimated rate (i.e., percentage) that makes the discounted present value of future cash flows equal to the initial investment? (Points : 2)
Weighted-average cost of capital (WACC).
Modified internal rate of return (MIRR).
Book (accounting) rate of return.
Internal rate of return (IRR).
Accounting rate of return (ARR), after tax.
13. To make a special order decision, managers need critical information about all the following except: (Points : 2)
Relevant costs.
Prior period operating costs.
Any opportunity costs.
The strategic, competitive environment of the firm
14. Omaha Plating Corporation is considering purchasing a machine for $1,500,000. The machine will generate a constant after-tax income of $100,000 per year for 15 years. The firm will use straight-line (SL) depreciation for the new machine over 10 years with no residual value. What is the payback period for the new machine, under the assumption that cash inflows occur evenly throughout the year? (Points : 2) 4 years. 5 years. 6 years. 10 years. 15 years.
Answer will be sent by email as attachment.
