31. Capital investments decisions are affected by:
A. Income taxes.
B. Non-financial considerations.
C. Both a and b.
D. Neither a nor b.
32. Capital investment proposals may be evaluated by using:
A. The payback period.
B. The return on investment method.
C. The discounted cash flow method.
D. All of the above.
33. The minimum rate of return used by an investor to bring future cash flows to their present value is called:
A. The investment rate.
B. The prime rate.
C. The discount rate.
D. The present rate.
34. To compute a future amount from a present value, we need to know:
A. The present value.
B. The interest rate.
C. The number of periods.
D. All of the above.
35. Financial instruments describe all of the following except:
A. Unearned revenues.
B. Cash.
C. Equity investments.
D. Contracts that call for receipts or payments of cash.
36. When management considers an investment they look for the payback period to be:
A. Short.
B. Long.
C. Profitable.
D. Useful.
37. If an investment costs $140,000 with no residual value, an expected increase in net income of $35,000 and a 5 year useful life, the payback period would be:
A. 2.2 years
B. 4 years
C. 5 years
D. 2 years
38. An investment cost $80,000 with no salvage value, a 5 year useful life and had an expected annual increase in net income of $7,000. Straight line depreciation is used. What is the expected rate of return on this investment?
A. 2.8%
B. 20%
C. 8.8%
D. 10.4%
39. A machine cost $46,000 and had a useful life of 4 years and a residual value of $7,000. What is the net present value of the machine if the annual cash flow is $16,000 and the company uses a discount rate of 10%? An annuity table shows the present value of $1 at 10% for 4 years to be 0.683. The present value of an ordinary annuity of $1 discounted at 10% for 4 years is 3.170.
A. $56,501
B. $33,118
C. $9,501
D. $63,000
40. Which of the following is not considered a capital investment?
A. The purchase of a large machine.
B. The development of a new product line.
C. The purchase of a large order of raw materials used in the production process.
D. The acquisition of a subsidiary company.