Wiley CPA Exam Review 2013, Business Environment and Concepts by O. Ray Whittington & Patrick R. Delaney

Author:O. Ray Whittington & Patrick R. Delaney
Language: eng
Format: epub
Publisher: Wiley
Published: 2012-11-26T00:00:00+00:00

Capital Budgeting

32. At what stage of the capital budgeting process would management most likely apply present value techniques?

a. Identification stage.

b. Search stage.

c. Selection stage.

d. Financing stage.

Capital Budgeting: Payback and Discounted Payback

33. How is the discounted payback method an improvement over the payback method in evaluating investment projects?

a. It involves better estimates of cash flows.

b. It considers the overall profitability of the investment.

c. It considers the time value of money.

d. It considers the variability of the return.

34. The capital budgeting technique known as payback period uses

Depreciation expense Time value of money

a. Yes Yes

b. Yes No

c. No No

d. No Yes

35. Which of the following is a strength of the payback method?

a. It considers cash flows for all years of the project.

b. It distinguishes the source of cash inflows.

c. It considers the time value of money.

d. It is easy to understand.

36. Tam Co. is negotiating for the purchase of equipment that would cost $100,000, with the expectation that $20,000 per year could be saved in after-tax cash costs if the equipment were acquired. The equipment’s estimated useful life is ten years, with no residual value, and would be depreciated by the straight-line method. The payback period is

a. 4.0 years.

b. 4.4 years.

c. 4.5 years.

d. 5.0 years.

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