75.Joseph Company is considering replacing an existing piece of machinery with newer technology. In deciding whether to replace the existing machinery, management should consider which costs as relevant?
A. Future costs which will be classified as fixed rather than variable.
B. Future costs which will be different under the two alternatives.
C. Sunk costs associated with the old machine.
D. Historical costs associated with the old machine.
76.Sterling Corporation has borrowed $75,000 that must be repaid in two years. This $75,000 is to be invested in an eight-year project with an estimated annual net cash flow of $15,000. The payback period for this investment is:
A. Two years.
B. Five years.
C. Eight years.
D. Indeterminable with the given information.
77.The management of Trylon Farms is considering the purchase of equipment costing $320,000. The equipment has a useful life of eight years, with $20,000 residual value. The use of this equipment will produce positive annual cash flow of $60,000 for eight years, as well as $20,000 from sale of the equipment at the end of the eighth year. Compute the net present value of this investment, discounted at an annual rate of 10%. (Present value of $1 due in eight years, discounted at 10%, is 0.467; present value of $1 received annually for eight years, discounted at 10%, is 5.335.)
A. $9,340.
B. $320,100.
C. $9,440.
D. $329,440.
78.Refer to the information above. Which of the above proposals generates the greatest annual cash flow?
A. Proposal A.
B. Proposal B.
C. Proposal C.
D. Cannot be determined with the given information.
79.Refer to the information above. The above data indicate that:
A. After considering the timing of future cash flows, each of the three proposals is expected to provide a rate of return in excess of 15%.
B. Proposal A will generate net losses annually.
C. If the salvage value of proposal A were $52,000 instead of zero, proposal A would have the highest net present value.
D. The present value of proposal B's future cash flows is $2,471,600.
80.Refer to the information above. On the basis of the above data, which of the following is
false?
A. Proposal A should be considered unacceptable.
B. Proposal C is the best alternative because it has the shortest payback period, which is the most meaningful of the capital budgeting statistics.
C. Proposal A's negative net present value indicates that this alternative will not generate management's required rate of return.
D. Although proposals B and C are each acceptable, proposal B is a better investment considering the time value of money.
81.Which of the following is
not
an important financial consideration in capital budgeting?
A. The timing of the investment's future cash flows.
B. The investment's future profitability.
C. The sunk costs related to the investment.
D. The initial cost of the investment and its estimated salvage value.
82.When using the net present value method for evaluating an investment, an increase in the required rate of return will:
A. Make it more difficult to accept the investment.
B. Make it less difficult to accept the investment.
C. Not affect the decision, if the length of the investment's benefits remain constant.
D. Not be a consideration because it is not used in the net present value method.
83.An investment's annual net cash flow will always be equal to its:
A. Annual revenue less its annual expenses.
B. Annual cash receipts less its annual cash disbursements.
C. Annual revenue less its annual cash disbursements.
D. Annual net income plus its annual depreciation expense.
84.Capital budgeting proposals often require input from all of the following stakeholders
except:
A. Managers.
B. Employees.
C. Shareholders.
D. Directors.
85.The accuracy of capital budget decisions is critically dependent on:
A. The project life span estimates.
B. Currency exchange rates.
C. Employee morale.
D. Supplier availability.