Question 1

The fifth step in the decision-making framework is,

Accepted Answer

The fifth step in the decision-making framework is to implement your choice, which comes after identifying options, gathering information, evaluating costs and benefits, and selecting the best option.

Question 2

The five steps in the decision-making framework, in order, are,

Accepted Answer

The correct order of the decision-making framework is to first outline the problem, then identify options, calculate relevant costs, select the option that maximizes benefits, and finally implement the choice.

Question 3

All of the following are true regarding a post-investment audit except:

Accepted Answer

Seasonal effects can influence the outcomes of an investment, and this should be considered when conducting a post-investment audit.

Question 4

A post-investment audit should be performed using

Accepted Answer

A post-investment audit should use the same evaluation technique as the original decision to ensure consistency and accurately assess the investment's performance against the initial expectations.

Question 5

A thorough evaluation of how well a project's actual performance matches the original project's performance is called a

Accepted Answer

A post-investment audit is conducted after a project is completed to assess how well the project's actual performance aligns with the original expectations and objectives.

Question 6

Performing a post-investment audit is crucial because

Accepted Answer

Post-investment audits provide a formal mechanism to determine if the project should be terminated, improve the development of future proposals because managers can evaluate their past failures and successes, and make managers more likely to make more accurate projections when they make investment proposals.

Question 7

A post-investment audit compares

Accepted Answer

A post-investment audit involves comparing the actual benefits and costs that occurred after an investment with the estimated benefits and costs that were projected before the investment was made.

Question 8

A project has a projected initial investment of $125,000, net annual cash flows of $56,000 for five years, and a rate of return of 10%. With a tax rate of 21% and a net present value of $62,606, how much can the project be off in the cash flow estimate before the project is less impressive with a net present value of zero?

Accepted Answer

$56,000 ÷ (1 - .21) = $70,887, $125,000 ÷ 3.79079 = $32,975 ÷ (1 - .21) = $41,740, $70,887 - $41,740 = $29,147
After-tax cash flows ÷ (1 - tax rate) = before-tax NPV, Int. Cost ÷ PVOA, n=5, i= 10% = after tax cash flow ÷ (1 - tax rate) = before tax BE cash flows, before-tax NPV - before tax BE cash flows = difference

Question 9

Complete the table for the missing data from a cost accounting perspective. 
  (Round to the nearest two decimal places.)

Accepted Answer

The answer of Complete the table for the missing data...

Question 10

If a company wants to invest in a new building in five years that will cost $1,200,000, how much would the company need to invest today to have the necessary funds, using a discount rate of 6%? (round to the nearest dollar)

Accepted Answer

The answer of If a company wants to invest in...

Question 11

Using the following setup, compare and contrast the different capital budgeting tools: net present value (NPV), internal rate of return (IRR), simple payback period and accounting rate of return (ARR).

Accepted Answer

The answer of Using the following setup, compare and contrast...

Question 12

Outline the five steps in the capital budgeting decision-making framework.

Accepted Answer

The answer of Outline the five steps in the capital...

Question 13

Define a post-investment audit and list two benefits.

Accepted Answer

The answer of Define a post-investment audit and list two...

Question 14

Lakota is deciding between two vehicles that will be leased for the next three years. The SUV will require a monthly lease of $350 that will be paid at the beginning of each month. The sedan will have payments due at the end of each month with the same $350 lease payment. Lakota will have a 36% discount rate associated with the lease. What is the present value (PV) for the two vehicles, and which should she choose based on your calculations? (round calculations to the nearest dollar)

Accepted Answer

The answer of Lakota is deciding between two vehicles that...

Question 15

Manuela is looking into purchasing a building for her new business. The building would cost $350,000 and have a life of 20 years. The building would have a salvage value of $40,000. She is estimating that the net operating cash flows will be $25,000. Determine the internal rate of return (IRR) and simple payback period of the building if the business will be subject to a 21% tax rate. (Calculate IRR using excel, round to the nearest 2 decimals)

Accepted Answer

The answer of Manuela is looking into purchasing a building...

Question 16

Taya and Herman are partners in a business. They have approached each other regarding possible investments to aid their business in creating more revenue. Taya's investment would require an initial outlay of cash of $40,000 but would provide an additional revenue stream of $22,000 per year. Herman's investment would cost $55,000 and would bring in additional revenue of $28,000 per year. Both investments would provide revenue for four years. Using a discount rate of 10%, calculate the discounted payback period for each investment and determine which investment would better use the company's resources. (Round intermediary calculations to the nearest whole dollar and the final payback period to the nearest hundredth. Ignore taxes.)

Accepted Answer

The answer of Taya and Herman are partners in a...

Question 17

Waggoner Cabins expects to see an increase in operating income over the next five years based on an initial investment of $85,000. Waggoner estimates that year one operating income will increase by $10,000, years 2 and 3 by $15,000, and years 4 and 5 by $20,000. The rate of return is estimated to be 8%, and the tax rate is 21%. What is the ARR of this investment, and should the company proceed with the investment? (round to the nearest 2 decimals)

Accepted Answer

The answer of Waggoner Cabins expects to see an increase...

Question 18

Parsons and Sons wants to replace a fleet of vehicles with electric cars. The following is the relevant data associated with this investment:
What is the net present value (NPV) for the new fleet, and should the company invest?

Accepted Answer

The answer of Parsons and Sons wants to replace a...

Question 19

Celeste runs a daycare for pets. She is having issues finding employees to assist and needs to cut back on her hours. She is hoping to fully retire in 7 years. Her current NPV is $20,000, using a tax rate of 21% and a discount rate of 6%. She understands by cutting back hours, her NPV will drop. However, she would still like to maintain a NPV of $8,000 for the next 7 years. At what amount of revenue (before-tax) could she earn to meet her desired NPV? (round to the nearest dollar)

Accepted Answer

The answer of Celeste runs a daycare for pets. She...

Question 20

Barney is looking into the purchase of a machine for his manufacturing company. He has narrowed his decision down to 2 options. Both investments are expected to have a useful life of 3 years, and Barney uses a required rate of return of 5%. The first option will require an initial investment of $45,000 and provide net after-tax cash flows of $21,000. The second investment will require an initial cash outlay of $62,000 but will provide net after-tax cash flows of $29,000. Both after-tax cash flows factor in the depreciation tax shield. 
Calculate the NPV and IRR for both investments. Which investment appears to be the better option?

Accepted Answer

The answer of Barney is looking into the purchase of...

Quiz 7: Capital Budgeting Choices and Decisions