Question 1

Match each one of the examples below with one of the stages of the capital budgeting decision model.
-Issuing corporate stock for the funds to purchase new equipment

Accepted Answer

Issuing corporate stock for the funds to purchase new equipment falls under the implementation phase of the capital budgeting decision model. This action is part of executing the chosen investment strategy, which involves securing the necessary financing to support the investment.

Question 2

Match each one of the examples below with one of the stages of the capital budgeting decision model.
-Learning how to effectively operate Machine 8 only takes 15 minutes

Accepted Answer

Learning how to effectively operate Machine 8 only takes 15 minutes is an example of analyzing available information.

Question 3

Match each one of the examples below with one of the stages of the capital budgeting decision model.
-The need to reduce the costs to process the vegetables used in producing goulash

Accepted Answer

Identifying the need to reduce costs in the process of producing goulash is part of identifying projects and uncertainties, as it highlights a specific area of the business that requires improvement or change.

Question 4

Match each one of the examples below with one of the stages of the capital budgeting decision model.
-Monitoring the costs to operate a new machine

Accepted Answer

Monitoring the costs to operate a new machine falls under the stage of implementing the decision, monitoring, following up, evaluating performance, and learning from the outcomes. This is a post-implementation activity aimed at assessing whether the investment is performing as expected and identifying areas for improvement.

Question 5

Match each one of the examples below with one of the stages of the capital budgeting decision model.
-Percentage of defective merchandise considered too high

Accepted Answer

Identifying that the percentage of defective merchandise is too high is part of the initial stage where projects and uncertainties are identified. This stage involves recognizing problems or opportunities that might require capital investment, such as improving product quality.

Question 6

Match each one of the examples below with one of the stages of the capital budgeting decision model.
-Will introducing the new product substantially upgrade our image as a producer of quality products?

Accepted Answer

The example is about analyzing available information, which is a part of the "Analyze available information" stage of the capital budgeting decision model.

Question 7

Match each one of the examples below with one of the stages of the capital budgeting decision model.
-Research indicates there are five machines on the market capable of producing our product at a competitive cost.

Accepted Answer

The answer of Match each one of the examples below...

Question 8

Match each one of the examples below with one of the stages of the capital budgeting decision model.
-Use of the internal rate of return for each alternative

Accepted Answer

The use of the internal rate of return (IRR) is a method for evaluating and comparing the profitability of different investment options, which is part of the decision-making process where one chooses among practical options.

Question 9

Explore Water Company drills small commercial water wells. The company is in the process of analyzing the purchase of a new drill. Information on the proposal is provided below.
Initial investment:
 
What is the net present value of the investment? Assume there is no recovery of working capital.

Accepted Answer

The answer of Explore Water Company drills small commercial water...

Question 10

Gulf Coast Parks Department is considering a new capital investment. The following information is available on the investment. The cost of the machine will be $432,576. The annual cost savings if the new machine is acquired will be $120,000. The machine will have a 5-year life, at which time the terminal disposal value is expected to be zero. Gulf Coast Parks Department is assuming no tax consequences. What is the internal rate of return for Gulf Coast Parks Department?

Accepted Answer

The internal rate of return (IRR) is the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. In this case, the IRR can be found by setting the NPV equation to zero and solving for the discount rate. Given the initial investment of $432,576 and annual savings of $120,000 over 5 years with no terminal value, the IRR is approximately 12%. This can be calculated using financial calculators or software designed for IRR calculations, as the equation involves solving for the rate in a polynomial equation, which is not straightforward algebraically.

Question 11

Gulf Coast Parks Department is considering a new capital investment. The following information is available on the investment. The cost of the machine will be $72,096. The annual cost savings if the new machine is acquired will be $20,000. The machine will have a 5-year life, at which time the terminal disposal value is expected to be zero. Gulf Coast Parks is assuming no tax consequences. Gulf Coast Parks has a 10% required rate of return. What is the payback period on this investment?

Accepted Answer

The payback period is calculated by dividing the initial investment by the annual cash inflow. Here, $72,096 / $20,000 = 3.6 years.

Question 12

Supply the missing data for each of the following proposals:

Accepted Answer

The answer of Supply the missing data for each of...

Quiz 14: Capital Budgeting and Cost Analysis

Match each one of the examples below with one of the stages of the capital budgeting decision model. -Issuing corporate stock for the funds to purchase new equipment

Match each one of the examples below with one of the stages of the capital budgeting decision model. -Learning how to effectively operate Machine 8 only takes 15 minutes

Match each one of the examples below with one of the stages of the capital budgeting decision model. -The need to reduce the costs to process the vegetables used in producing goulash

Match each one of the examples below with one of the stages of the capital budgeting decision model. -Monitoring the costs to operate a new machine

Match each one of the examples below with one of the stages of the capital budgeting decision model. -Percentage of defective merchandise considered too high

Match each one of the examples below with one of the stages of the capital budgeting decision model. -Will introducing the new product substantially upgrade our image as a producer of quality products?

Match each one of the examples below with one of the stages of the capital budgeting decision model. -Research indicates there are five machines on the market capable of producing our product at a competitive cost.

Match each one of the examples below with one of the stages of the capital budgeting decision model. -Use of the internal rate of return for each alternative

Explore Water Company drills small commercial water wells. The company is in the process of analyzing the purchase of a new drill. Information on the proposal is provided below. Initial investment: What is the net present value of the investment? Assume there is no recovery of working capital.

Supply the missing data for each of the following proposals: