Fundementals Of Cost Accounting Seventh Edition-McGraw Hill- ACCT521 CH Appendix QUESTIONS Week 8

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Grantham University *

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521

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Finance

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Apr 3, 2024

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Capital investments Blank______. Multiple select question. are defined as investments between $100,000 and $500,000 Reason: Capital investments can be in any amounts. always require approval by the Board of Directors incorrect Reason: This is often true for large projects only. often involve large sums of money incorrect decisions rest with management correct generally involve considerable risk incorrect Correct Answer  often involve large sums of money  decisions rest with management  generally involve considerable risk The timing of cash flows Blank______. Multiple choice question. is important because cash received earlier has greater economic value than cash received later does not affect its economic value is important because cash received later has greater economic value than cash received earlier incorrect Correct Answer is important because cash received earlier has greater economic value than cash received later Which of the following are true? Multiple select question. Capital investment analysis uses revenues and expenses. A timing difference exists between revenue recognition and cash inflow.

correct Capital investment analysis uses cash flows. correct A timing difference often exists between cost incurrence and cash outflow. incorrect Correct Answer  A timing difference exists between revenue recognition and cash inflow.  Capital investment analysis uses cash flows.  A timing difference often exists between cost incurrence and cash outflow. The amount of future cash flows discounted to their equivalent worth today is the present Blank 1 Blank 1 present , Correct Unavailable value Blank 2 Blank 2 value , Correct Unavailable of the cash flows. ( Enter only one word per blank.) Correct Answer  Blank 1: present  Blank 2: value A company is evaluating two projects. The discount rate is 15%. Both projects cost $12,000 and return a total of $16,000. If Project A is acceptable, Project B Blank______ the timing of cash flows. Multiple choice question. may not be acceptable due to correct will also be acceptable regardless of Correct Answer may not be acceptable due to The most important role in capital investment decisions for the accountant is Blank______. Multiple choice question. developing capital investment models

estimating the amount and timing of future cash flows correct making the final decision regarding asset acquisition Reason: This rests with management. approving all asset acquisition decisions Correct Answer estimating the amount and timing of future cash flows Because capital investment decisions extend over many years, a significant decision factor for managers making these decisions is the time Blank 1 Blank 1 time , Correct Unavailable value Blank 2 Blank 2 value , Correct Unavailable of money. (Enter only one word per blank.) Correct Answer  Blank 1: time  Blank 2: value Capital investment analysis uses Blank______. Multiple choice question. revenues and expenses cash flows correct Correct Answer cash flows In the net present value equation, which of the following represents the present value factor? Multiple choice question. N � Reason: This represents the life of the investment, in years. C n �� Reason: This represents the cash to be received or disbursed at the end of time period n.

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d � Reason: This represents the appropriate discount rate for the future cash flows. (1+d) −n (1+�)-� correct Correct Answer (1+d) −n Which of the following is NOT a major category of cash flow for a project? Multiple choice question. Cash flows from depreciation expense correct Reason: The cash flow from the depreciation tax shield is a cash flow, not depreciation expense. Investment cash flows Periodic operating cash flows Disinvestment cash flows Correct Answer Cash flows from depreciation expense The starting time for capital investment projects is assumed to be time zero Blank 1 Blank 1 zero , Correct Unavailable. (Enter only one word per blank.) Correct Answer  Blank 1: zero or 0 Investment cash flows include Blank______. Multiple select question. installation costs incorrect new equipment cost correct amount of gain or loss on disposal of old equipment incorrect

Reason: Only the tax effects are cash flows working capital commitments incorrect Correct Answer  installation costs  new equipment cost  working capital commitments Capital investments Blank______. Multiple select question. decisions rest with management correct always require approval by the Board of Directors Reason: This is often true for large projects only. often involve large sums of money correct are defined as investments between $100,000 and $500,000 Reason: Capital investments can be in any amounts. generally involve considerable risk correct Correct Answer  decisions rest with management  often involve large sums of money  generally involve considerable risk The primary reason for acquiring long-term assets is usually to Blank______. Multiple choice question. invest excess funds generate positive periodic operating cash flows correct increase company value due to asset appreciation decrease the net operating income of the company Correct Answer generate positive periodic operating cash flows

The timing of cash flows Blank______. Multiple choice question. is important because cash received earlier has greater economic value than cash received later correct is important because cash received later has greater economic value than cash received earlier does not affect its economic value Correct Answer is important because cash received earlier has greater economic value than cash received later To maximize present value it is usually best to Blank______ depreciation. Multiple choice question. not report use accelerated correct use straight-line Correct Answer use accelerated Disinvestment cash flows may include Blank______. Multiple select question. tax consequences correct disposal costs correct salvage of long-term assets correct cash paid for working capital Reason: Disinvestment cash flows include cash freed from working capital commitments. Correct Answer

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 tax consequences  disposal costs  salvage of long-term assets The net income from a project Blank______ a major category of cash flows for a project. Multiple choice question. is not correct Reason: Cash flows, not net income is considered in evaluating a project. may or may not be is always Correct Answer is not Asset acquisition cash flows include Blank______. Multiple select question. new equipment cost correct installation costs incorrect tax effects of a gain or loss correct working capital commitments Reason: This is a cash flow, but not part of asset acquisition. Correct Answer  new equipment cost  installation costs  tax effects of a gain or loss When evaluating an investment proposal, it is important to measure Blank______ capital investment. Multiple choice question.

net income before and after only revenue-generating activities related to Reason: Cost saving are also considered, as well as any new expenses. all differential cash flows relevant to correct Correct Answer all differential cash flows relevant to The depreciation deduction computed for the tax shield Blank______ the same as depreciation computed for financial reporting purposes. Multiple choice question. is never is always may not be correct Correct Answer may not be Cash flows at the end of the life of the project are called disinvestment Blank 1 Blank 1 disinvestment , Correct Unavailable flows. (Enter only one word per blank.) Correct Answer  Blank 1: disinvestment