Exam Simulation cid 9 BMGT 221 cid 9 Chap 12 Name Section MULTIPLE CHOICE Choose the one alternative that best completes the statement or answers the question term below is best described as a formal means of analyzing long range investment cid 9 1 alternatives A Payback period cid 9 C Annuity cid 9 asset Capital budgeting D Time value of money LYich of the following is the formula for calculating the accounting rate of return for a capital 2 A Average annual net cash inflow from asset amount invested in asset Average annual operating income from asset amount invested in asset C Average annual cash inflows depreciation expense amount invested in asset residual value of asset D Average annual operating income depreciation expense amount invested in asset Latimer Corporation is considering two alternative investment proposals with the following cid 9 data 3 Investment Useful life Estimated annual net cash inflows for 8 years Residual value Depreciation method Required rate of return Proposal X 812 500 8 years 125 000 40 000 Straight line 14 cid 9 Proposal Y 390 000 8 years 78 000 Straight line 10 cid 9 paorLV piioc How long long is the payback period for Proposal X A 10 42 years cid 9 B 20 31 years cid 9 6 50 years cid 9 D 5 00 years y illiams Department Stores is considering two possible expansion plans One proposal cid 9 4 involves opening 5 stores in Indiana at the cost of 1 800 000 Under the other proposal the company would focus on Kentucky and open 6 stores at a cost of 2 400 000 The following information is available Required investment Estimated life Estimated residual value Estimated annual cash inflows over the next 10 years Required rate of return Indiana proposal Kentucky proposal 1 800 000 10 years 50 000 400 000 2 400 000 10 years 80 000 500 000 10 10 0000O 500 000 The payback period for the Kentucky proposal is closest to A 30 0 years cid 9 4 8 years cid 9 C 6 0 years cid 9 D 4 5 years cid 9 cid 9 cid 9 You win the lottery and must decide how to take the payout Use an 8 discount rate What is 5 the present value of 10 000 a year received at the end of each of the next six years A 6 300 cid 9 46 230 cid 9 C 60 000 cid 9 D 49 928 esent value tables are required Salvador Corporation is considering the purchase of a special blow molding machine that would cost 64 366 and would have a useful life of 8 years The machine would generate 11 200 of net annual cash inflows per year for each of the 8 years of its life The internal rate of return on the machine would be closest to D 12 A 14 cid 9 B 10 cid 9 cid 9 6 Speedy Company has three potential projects from which to choose Selected information on each of the three projects follows cid 9 7 I Investment required Net present value of project Project A 42 500 45 700 Project B 65 800 75 400 Project C 53 700 70 200 Using the profitability index rank the projects from most profitable to leastrofitable BCA cid 9 C B A C cid 9 B A B C cid 9 OW Copper Creations is evaluating a project that would require an initial investment of 36 000 cid 9 8 p The present value of the net cash inflows associated with this project would be 43 920 The profitability index for this project would be closest to A 0 82 cid 9 B 0 22 cid 9 91 22 cid 9 D 4 55 Yich term below is best described as management s minimum desired rate of return on an cid 9 9 D investment A Payback return cid 9 C Net present value cid 9 B Internal rate of return iiiscount rate V1 Z O 1 t o o G 000 O3AVd ti1 I 10000X cid 9 H pO t iP cid 9 ceL cid 9 csA AVJS cid 9 CO LA btht cid 9 rtO o 1 sk I cid 9 so TTti cid 9 Lj91Q 000 tj cid 9 cid 9 cid 9
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