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Question(s) / Instruction(s):

41.     Under United States tax laws, a company may estimate the useful life of an asset for depreciation purposes.
     
42.     The economic life of an asset may exceed the recovery period of the asset.
     

 

43.     Because a loss on the sale of an asset is tax deductible, companies often benefit more from losses than from gains.
     

44.     A recognized loss on a sale of an asset causes a company’s tax liability to decrease.
     

45.     The accounting rate-of-return model shows the effects of an investment on an organization’s financial statements.
     

46.     The payback model measures profitability as well as how quickly investment dollars may be recouped.
     

47.     Managers may use the payback period as a rough estimate of the riskiness of a project.
     
48.     Projects that recoup their investment quickly may be less risky than those that require a longer wait.
     
49.     ARR = increase in expected average annual operating income x initial required investment.
     
50.     ARR does not ignore the time value of money.
     


51.      A follow-up evaluation of capital-budgeting decisions is called a postaudit.
               

52.     One purpose of a postaudit is to provide information for improving future predictions of cash flows.

 

                    
53.     Because future inflation has no effect on the current purchase price of an asset, inflation factors can be ignored when capital-budgeting decisions are made.
     

54.     Real rate = risk-free rate + business-risk rate.
     
55.     Nominal rate = real rate - inflation.

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