Question 1

Long-term investment decisions are usually driven by the ________________ equipment now rather than later.

Accepted Answer

C

Question 2

The next step in the (requisition) process is to compare the acquisition request with the overall _______________ of the firm. These _________ will be the basis for evaluating proposals for new equipment and making selections.

Accepted Answer

E

Question 3

The net incremental cash flows should be measured. The ________ life of the project versus the _________ life of the project also must also be considered.

Accepted Answer

The economic life of the project refers to the period in which the project generates positive cash flows, while the physical life of the project refers to the time period in which the project can actually be used or exist. Therefore, it is important to measure the net incremental cash flows and consider the economic life of the project when evaluating its financial feasibility. Choice B correctly pairs these terms.

Question 4

The capital acquisition process is initiated with a department requesting equipment replacements and expansions. The request is then measured against __________________.

Accepted Answer

The answer of The capital acquisition process is initiated with...

Question 5

______________ are net economic benefits generated by an investment project.

Accepted Answer

Net cash flows refer to the cash inflows from the project minus the cash outflows. These inflows and outflows are adjusted for depreciation, taxes, and other costs to determine the net economic benefit generated by the project. Gross cash flows, returns on investments, profits, and sales are all related to a project's financial performance but do not specifically measure the net economic benefit.

Question 6

The acquisition of capital equipment involves the allocation and commitment of funds. These investments usually require significant expenditures and are made with the expectation that the _________ will be extended over several years.

Accepted Answer

The answer of The acquisition of capital equipment involves the...

Question 7

The objectives of the company are important because the purchase of any major equipment will probably affect the _______________ of the company for many years in the future.

Accepted Answer

The answer of The objectives of the company are important...

Question 8

The classification of the various capital equipment requests must be based on certain common characteristics. Although equipment classification varies from company to company, capital projects are frequently grouped according to the following categories:
Replacementsxpansion (new products)xpansion (existing products)
Other (heating system for plant)
Other (new construction)
Other (renovation)

Accepted Answer

The statement correctly describes the common categories based on which capital equipment requests are classified in most companies.

Question 9

ompanies on a growth pattern fueled by ______________ acquire new equipment to expand into a newly introduced product line. Investment in capital equipment for expansion purposes should increase incremental revenue.

Accepted Answer

The answer of ompanies on a growth pattern fueled by...

Question 10

The requisition process is sometimes initiated by a ___________________ or special appropriation for major acquisitions. Sometimes firms place a monetary limit upon acquisition that can be made without special approval.

Accepted Answer

The answer of The requisition process is sometimes initiated by...

Question 11

The timing of these capital acquisition decisions is critical to the financial health of a firm. However, once capital investment decisions are made, they are easily reversible.

Accepted Answer

Capital investment decisions are not easily reversible. They involve substantial financial resources and long-term commitments and have significant implications for a firm's financial health. It can be costly and difficult to reverse or undo these decisions once they are made.

Question 12

ompany goals may be slightly different across organizations, but all __________ firms must eventually _____________.

Accepted Answer

For-profit firms need to ultimately maximize their profitability in order to sustain and grow their business. While the other options may be important to varying degrees, they are not the ultimate goal for for-profit firms.

Question 13

If a capital equipment request survives the new project ideas step, __________ estimates must be considered for each capital investment idea.

Accepted Answer

Cash-flow estimates are crucial for evaluating capital investment ideas, as they provide insight into the expected inflows and outflows of cash associated with the project, enabling an assessment of its financial viability.

Question 14

____________________ is usually motivated by a need to increase quality, reduce operating expense, and provide more efficiency.

Accepted Answer

The replacement of old equipment is typically motivated by the need to increase quality, reduce operating expenses, and provide more efficiency. This is because old equipment may be less reliable, less efficient, and more expensive to maintain and repair. By replacing it with newer equipment, a company can improve its operations and reduce costs in the long term. The other options listed may also be motivated by these factors, but are not necessarily always driven by them.

Question 15

The ________ cash inflows and outflows of each capital project alternative must be evaluated on an incremental cash-flow basis.

Accepted Answer

When evaluating capital projects, it is important to consider the after-tax cash inflows and outflows on an incremental cash-flow basis. This takes into account the net effect of the project on the company's cash flow after accounting for taxes. Pre-tax and general cash flows do not take into account tax implications, while standard and major cash flows are not commonly used terms in capital budgeting analysis.

Question 16

The acquisition of capital equipment is a major decision in most firms. The capital acquisition decision has a significant effect on numerous aspects of the firm's ____________. The tax planning process is also a significant component of this decision.

Accepted Answer

The acquisition of capital equipment impacts the firm's financial health as it involves significant investment and affects cash flow, debt levels, and overall financial stability.

Question 17

Which of the following items should be applied as criteria to the cash-flow analysis?

Accepted Answer

The economic life of the project is important to consider in the cash-flow analysis because it is the duration during which the project is expected to generate cash flows. Net cash flow is the difference between cash inflows and outflows, and it is a key factor in determining the profitability of the project. Net cash investment is the amount of money that is required to be invested initially in the project, and it is important to consider in determining the overall financial feasibility of the project. Therefore, all of these items should be applied as criteria to the cash-flow analysis.

Question 18

There are numerous testimonials regarding the use of life cycle ________ for both capital equipment and systems acquisition.

Accepted Answer

The phrase "life cycle" indicates the entire lifespan of a product or system, including its acquisition, operation, and eventual disposal or replacement. Therefore, it's most appropriate to discuss costing methods that consider the full life cycle rather than simply expensing or depreciating the initial cost. Option E, costing, best suits this context.

Question 19

xpanding existing equipment is also a way to increase ________. The other categories of capital investment revolve around the plant, facilities, and construction.

Accepted Answer

Expanding existing equipment can increase the output of a company, meaning they can produce more goods or services in a given amount of time. This can lead to increased revenue and profitability.

Question 20

Most of the equipment costs are pegged to ____________.

Accepted Answer

The answer of Most of the equipment costs are pegged...

Quiz 16: Equipment Acquisition and Disposal