Question 1

Capital budgeting is:

Accepted Answer

Capital budgeting involves making long-term investment decisions related to the acquisition or disposal of fixed assets, which are essential for the organization's operations. Therefore, it is part of long-term organizational planning.

Question 2

In which of the following steps in the capital budgeting process would net present value be used?

Accepted Answer

Net present value (NPV) is used in the step of selecting the appropriate investments to evaluate and compare the profitability of different investment opportunities.

Question 3

The weighted average cost of a firm's debt and equity financing is referred to as the firm's:

Accepted Answer

The weighted average cost of a firm's debt and equity financing is commonly referred to as the firm's hurdle rate. This is the minimum rate of return required by the firm's investors or lenders to justify the investment or financing.

Question 4

The capital budgeting process uses the four processes listed below,identify the sequence in which the processes occur starting with 1 and ending with 4.
_____
A.Financing the selected investment.
_____
B.Identifying long-term investment opportunities.
_____
C.Evaluating the investments.
_____
D.Selecting appropriate investment.

Accepted Answer

The answer of The capital budgeting process uses the four...

Question 5

All of the following are operational investments except an investment in:

Accepted Answer

Corporate bonds are financial investments, not operational investments. Operational investments are those made in assets that are used to run the day-to-day operations of a business, such as machinery, buildings, and patents.

Question 6

The last step in the capital budgeting process is:

Accepted Answer

The last step in the capital budgeting process is evaluating the investments. This involves reviewing the potential investment in light of the criteria established earlier in the process to determine whether it meets the organization's goals and budget constraints. After evaluating the investment, the organization can make a final decision on whether to proceed with the investment or not.

Question 7

Which of the following is an operational investment?

Accepted Answer

Operational investments are those that are directly related to the core business activities. Buying a patent is an operational investment as it can be used to enhance or protect the company's products or services.

Question 8

Horizons,Inc.paid $232,500 for a machine shipped FOB shipping point.Freight costs totaled $4,500,the sales tax was $11,300,and installation amounted to $9,800,with an additional $1,600 spent to repair the machine after a worker dropped it during installation.The total cost of the machine for accounting purposes was:

Accepted Answer

The total cost includes the purchase price, freight, sales tax, and installation costs. It excludes repair costs due to damage after purchase. Total cost = $232,500 + $4,500 + $11,300 + $9,800 = $258,100.

Question 9

A capital investment generates a satisfactory rate of return when its return is:

Accepted Answer

A capital investment must generate a rate of return that is equal to or greater than the firm's cost of capital to be considered satisfactory. This is because the cost of capital represents the minimum return required by the firm's investors to compensate for the risk they are taking by investing in the project. If the return on the investment is lower than the cost of capital, the project is not generating enough returns to cover its cost and is therefore not viable.

Question 10

The process used for analysis and selection of the long-term investments of a business is called:

Accepted Answer

Capital budgeting is the process of analyzing and selecting long-term investments that will yield the highest return over time. It involves evaluating the cost of the investment, the expected cash flows, and the potential risks involved. Capital budgeting decisions have a long-lasting impact on the financial health of the company, and therefore require careful consideration and analysis. Financial analysis and budgeting are important components of the capital budgeting process, but alone they do not encompass the entirety of the process. Operating analysis may provide useful information for capital budgeting decision-making, but it is not the primary process used for selecting long-term investments.

Question 11

Calculating Net Present Value requires the four steps listed below,identify the sequence in which the steps occur starting with 1 and ending with 4.
_____
A.Calculate the present value of expected future cash flow using the cost of
capital
_____
B.Estimate the amount an timing of future cash flows associated with the
potential investment.
_____
C.Decide on whether or not to make the investment
_____
D.Calculate the Net Present Value

Accepted Answer

The answer of Calculating Net Present Value requires the four...

Question 12

Which of the following is the correct order of events in the capital budgeting process?

Accepted Answer

Identifying investment opportunities is the first step in the capital budgeting process. Evaluating investments is the second step. Selecting investments is the third step. Financing investments is the fourth step.

Question 13

All of the following are operational investments exept.

Accepted Answer

Buying land with the intent of selling it at a higher price in two years is a financial investment, not an operational investment. Operational investments are purchases made to improve the operations or efficiency of the business, such as buying equipment, buildings, or computers.

Question 14

A firm's cost of capital represents all the following except.

Accepted Answer

The cost of capital refers to the cost of a company's funds (both debt and equity), or, from an investor's point of view "the required rate of return on a portfolio company's existing securities". It is used to evaluate new projects of a company. It is not the cost of the long-term operating assets the firm acquires, which is more directly associated with capital expenditure decisions rather than the financing of those assets.

Question 15

Which one of the following is not a reason for making an operational investment?

Accepted Answer

While low interest rate financing can make an investment more attractive, it is not a reason in and of itself to make an operational investment. The other options listed are all valid reasons for making long-term operational investments.

Question 16

In which of the following steps in the capital budgeting process would sensitivity analysis be used?

Accepted Answer

The answer of In which of the following steps in...

Question 17

A capital investment generates a satisfactory rate of return when its return is:

Accepted Answer

A capital investment should generate a satisfactory rate of return when its return is greater than or equal to the cost of capital. This ensures that the investment is yielding a return that exceeds the minimum required by the investor or the company, covering both the cost of capital and providing an acceptable return for the risk taken.

Question 18

The first step in the capital budgeting process is:

Accepted Answer

The first step in the capital budgeting process is to identify potential long-term investment opportunities. This involves analyzing the company's goals and strategies to determine what types of investments would support those objectives. Only after potential investments have been identified can the selection, evaluation, and financing processes begin.

Question 19

Capital investments in operating assets are made:

Accepted Answer

Capital investments in operating assets can have multiple purposes, including expanding the business, complying with government regulations or replacing outdated or unproductive assets. Therefore, all of the above options are correct.

Question 20

Ness Corporation purchased a machine with a cost of $100,000 and paid $500 in freight charges and $1,000 to have it installed.Ness failed to take advantage of a $2,000 discount it would have received if it had paid $98,000 cash within ten days of the purchase.How much is the cost of the machine?

Accepted Answer

The answer of Ness Corporation purchased a machine with a...

Quiz 12: Planning Investments: Capital Budgeting

Capital budgeting is:

In which of the following steps in the capital budgeting process would net present value be used?

The weighted average cost of a firm's debt and equity financing is referred to as the firm's:

All of the following are operational investments except an investment in:

The last step in the capital budgeting process is:

Which of the following is an operational investment?

A capital investment generates a satisfactory rate of return when its return is:

The process used for analysis and selection of the long-term investments of a business is called:

Which of the following is the correct order of events in the capital budgeting process?

All of the following are operational investments exept.

A firm's cost of capital represents all the following except.

Which one of the following is not a reason for making an operational investment?

In which of the following steps in the capital budgeting process would sensitivity analysis be used?

A capital investment generates a satisfactory rate of return when its return is:

The first step in the capital budgeting process is:

Capital investments in operating assets are made:

Ness Corporation purchased a machine with a cost of $100,000 and paid $500 in freight charges and $1,000 to have it installed.Ness failed to take advantage of a $2,000 discount it would have received if it had paid $98,000 cash within ten days of the purchase.How much is the cost of the machine?