Question 1

Which capital budgeting technique is preferred in all major industrialized countries?

Accepted Answer

D

Question 2

What is the role of accounting in formulating strategy?

Accepted Answer

Accounting plays a crucial role in formulating strategy as it assists in quantifying opportunities and threats, preparing budgets, and making estimates of costs and benefits of various alternatives. These functions help organizations in making informed decisions and developing effective strategies for achieving their objectives.

Question 3

Which of the following is a major limitation of using the internal rate of return as a tool in capital budgeting?

Accepted Answer

Internal rate of return assumes that the cash flows received from the project will be reinvested at the same rate as the IRR, which is often unrealistic. This can lead to incorrect investment decisions, especially for projects with long life spans. The other options (A, B, and C) are incorrect because IRR takes into account the time value of money and cash flows, and uses accounting numbers to calculate returns.

Question 4

Estimating the expected cash inflows and outflows from proposed projects is performed in what step of the capital budgeting process?

Accepted Answer

Estimating cash inflows and outflows is a crucial component of the project evaluation phase of the capital budgeting process. This step involves analyzing and comparing the expected costs and benefits of proposed projects to determine their potential profitability and feasibility. The other options (project identification, monitoring, and review) do not directly involve estimating cash flows.

Question 5

What is the limitation of using the net present value for evaluating capital investment alternatives?

Accepted Answer

Net Present Value (NPV) does consider the time value of money and cash flows, making options A and B incorrect. However, comparing projects of different sizes using NPV can be challenging because it provides the value in absolute terms rather than relative profitability or efficiency, which is why C is the correct limitation.

Question 6

The process of management control by which managers influence others members of the organization to achieve organization's goals is known as:

Accepted Answer

Strategy implementation is the process by which managers influence other members of the organization to achieve organization's goals. Performance evaluation involves assessing the performance of individuals or departments, operational planning focuses on planning and coordination of day-to-day tasks, and capital budgeting involves evaluating and selecting long-term investment projects.

Question 7

Which of the following factors is generally considered in performing the environmental analysis phase of strategy formulation?

Accepted Answer

All three factors - competitors, government regulations, and customer demand - are generally considered in performing the environmental analysis phase of strategy formulation.

Question 8

Where would a divisional manager look to find the targets she is expected to reach in the next fiscal year?

Accepted Answer

The operating budget typically sets targets for revenue, expenses, and profits for the division for the next fiscal year. Strategic plans provide direction for achieving long-term goals but do not necessarily include specific targets for the upcoming fiscal year. Capital budgets outline planned investments in assets such as equipment or facilities. Strategic formulation involves the development of strategies to achieve long-term goals and does not provide specific targets for the upcoming fiscal year.

Question 9

Influencing subordinates to behave in accordance with the goals and objectives of the organization is referred to as:

Accepted Answer

Management control involves influencing subordinates to behave in line with the goals and objectives of the organization. Performance evaluation is the process of assessing an employee's performance against predetermined objectives, while strategic planning involves setting long-term goals and objectives for the organization. Goal congruence refers to the alignment of individual and organizational goals.

Question 10

What term is used to describe the process involving revising existing goals and adopting new goals?

Accepted Answer

The answer of What term is used to describe the...

Question 11

The process of identifying, evaluating, and selecting projects that require substantial amounts of resources and are expected to generate benefits for many years into the future is called:

Accepted Answer

Capital budgeting is the process of identifying, evaluating, and selecting long-term investment projects. Strategy formulation refers to developing strategic plans to achieve organizational objectives, which may include capital budgeting decisions. Short-term planning and operational budgeting are more focused on managing day-to-day operations and allocating resources for shorter time periods.

Question 12

How is the payback period used in capital budgeting?

Accepted Answer

The answer of How is the payback period used in...

Question 13

A plan for next year expressed in quantitative terms is referred to as:

Accepted Answer

A plan for next year expressed in quantitative terms is typically referred to as an operating budget. A strategy is a broader plan for achieving goals, a capital budget is focused on large investments in fixed assets, and a management control system is a set of tools and processes used to monitor and evaluate performance.

Question 14

Why is it believed that Japanese companies prefer the payback period over the discounted cash flow methods for evaluating capital investment alternatives?

Accepted Answer

The payback period is preferred because it aligns with Japanese companies' strategies of investing in new technology, managing short product life cycles, and addressing the challenge of predicting long-term cash flows accurately.

Question 15

What is the major limitation of using the payback period as a tool in capital budgeting?

Accepted Answer

The major limitation of using the payback period as a tool in capital budgeting is that it ignores the time value of money. This means that it does not take into account the fact that money received in the future is worth less than money received today due to inflation and the ability to invest money to earn interest.

Question 16

What discount rate should be used for calculating net present values of capital investment alternatives?

Accepted Answer

The discount rate used for calculating net present values of capital investment alternatives should be the desired rate of return. This reflects the minimum return the company expects to earn on an investment, taking into account the risk associated with the investment.

Question 17

Which capital budgeting technique recognizes the time value of money?

Accepted Answer

Internal rate of return (IRR) recognizes the time value of money by considering the cash flows over the life of the project and discounting them back to their present value using a discount rate. The other capital budgeting techniques (payback period, book rate of return, return on investment) do not explicitly take into account the time value of money.

Question 18

What is a capital investment?

Accepted Answer

A capital investment involves committing resources (such as money, time, and/or assets) to a project or asset that will provide long-term benefits. This typically involves costs that are incurred over a longer time period, with the expectation of generating revenue or cost savings in the future. Examples of capital investments include building a new factory, purchasing new equipment, or investing in research and development. Options A, B, and C are not accurate definitions of capital investment.

Question 19

Conceptually, what is the internal rate of return?

Accepted Answer

The internal rate of return (IRR) is the discount rate that makes the net present value of a project's cash inflows equal to the net present value of its cash outflows. It is a measure of the profitability of an investment and is often used to compare different investment opportunities. Option A is referring to the payback period, option C is referring to the cost of capital, and option D is referring to the return on investment (ROI).

Question 20

Which of the following is NOT part of the capital budgeting process?

Accepted Answer

All the options listed (Project identification, Project evaluation, and Project monitoring) are integral parts of the capital budgeting process. This process involves identifying potential investments, evaluating their feasibility, and monitoring their performance once implemented.

Quiz 10: Management Accounting Issues in Multinational Corporations