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Question(s) / Instruction(s):

A project is accepted under the net present value method when 

a)            the percentage return is greater than a predetermined minimum percentage.

b)            total net cash inflows exceed the purchase price of the asset.

c)            the purchase price of the asset is less than the present value of net cash inflows.

d)            the present value of net cash inflows exceeds a predetermined minimum amount.

                          

 

12. Chicago Co. is interested in purchasing a machine that would improve its operational efficiency. The cost is $200,000 with an estimated residual value of $20,000 and a useful life of eight years. Cash inflows are expected to increase by $40,000 a year. The company's minimum rate of return is 10 percent. The present value of $1 for eight years at 10 percent is 0.467, and the present value of an annuity of $1 at 10 percent and eight years is 5.335.

The net present value of the project is

a)            $74,520

b)            $120,100

c)            $93,400

d)            $22,740

 

13. In making capital budgeting decisions, the discounted cash flow method aids in evaluating investments involving cash flows over time where there is a significant time difference between cash payment and receipt. Analysts use which two discounted cash flow methods? 

a)            the payback method and the internal rate of return method.

b)            the net present value method and the simple rate of return method.

c)            the net present value method and the internal rate of return method.

d)            the payback method and the simple rate of return method.

 

14. Investors and creditors would find the statement of cash flows least useful in assessing 

a)            financial position at a point in time.

b)            need for additional financing.

c)            ability to pay dividends and liabilities.

d)            ability to generate positive future cash flows.

 

 

15. The direct method of preparing a statement of cash flows 

a)            is the overwhelming choice of most companies.

b)            begins with net income in the operating activities section.

c)            is more difficult to understand than the indirect method for the average reader.

d)            will produce the same net figure as the indirect method.

 

 

16. The following 2009 information relates to Raddatz, Inc.:

Net Income        $365,000

Depreciation Expense    96,000

Amortization of Intangible Assets             11,000

Beginning Accounts Receivable 420,000

Ending Accounts Receivable        439,000

Beginning Inventory       516,000

Ending Inventory             560,000

Beginning Prepaid Expenses       48,000

Ending Prepaid Expenses             42,000

Beginning Accounts Payable       119,000

Ending Accounts Payable              146,000

Purchase of Long-Term Assets for Cash 616,000

Cash from Issuance of Long-Term Debt 200,000

Issuance of Stock for Cash           160,000

Purchase of Treasury Stock         64,000

Sale of Long-Term Investment at Cost    39,000

How much is the net cash flows from investing activities?

a)            ($616,000)

b)            ($577,000)

c)            ($712,000)

d)            ($520,000)

 

17. The following 2009 information relates to Raddatz, Inc.:

Net Income        $365,000

Depreciation Expense    96,000

Amortization of Intangible Assets             11,000

Beginning Accounts Receivable 420,000

Ending Accounts Receivable        439,000

Beginning Inventory       516,000

Ending Inventory             560,000

Beginning Prepaid Expenses       48,000

Ending Prepaid Expenses             42,000

Beginning Accounts Payable       119,000

Ending Accounts Payable              146,000

Purchase of Long-Term Assets for Cash 616,000

Cash from Issuance of Long-Term Debt 200,000

Issuance of Stock for Cash           160,000

Purchase of Treasury Stock         64,000

Sale of Long-Term Investment at Cost    39,000

 

How much is the net cash flows from financing activities?

a)            $296,000

b)            $360,000

c)            $424,000

d)            $24,000

 

18. Horizontal analysis of comparative financial statements includes the 

a)            development of common-size statements.

b)            calculation of dollar amount changes and percentage changes from the previous to the current year.

c)            calculation of the percentage of net sales for each item listed.

d)            calculation of liquidity ratios.

 

 

19. One reason that a common-size statement is a useful tool in financial performance evaluation is that it enables the user to 

a)            make better comparisons of two companies of different sizes in the same industry.

b)            determine which companies in a single industry are of the same size.

c)            judge the relative potential of two companies of similar size in different industries.

d)            determine which companies in a single industry are of the same value.

 

 

20. If Year 1 equals $1,400, Year 2 equals $1,554, and Year 3 equals $1,750, the index number to be assigned for Year 3 in trend analysis, assuming that Year 1 is the base year, is 

a)            100.

b)            135.

c)            125.

d)            130.

 

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