Multiple Choice Questions
35.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.
36.Capital investments decisions are
not
affected by:
A. Income taxes.
B. Non-financial considerations.
C. Depreciation methods.
D. Inventory levels.
37.Refer to the information above. By how much would Terme's annual gross profit increase if the investment is undertaken?
A. $750,000.
B. $84,375.
C. $187,500.
D. $103,125.
38.Refer to the information above. What is the amount of depreciation deduction the company could expense annually assuming the straight line depreciation method is used?
A. $75,000.
B. $41,250.
C. $71,500.
D. $30,250.
39.Refer to the information above. Ignoring income taxes, what is the estimated annual net operating income increase/decrease?
A. $9,375 decrease.
B. $12,875 increase.
C. $43,125 decrease.
D. $54,125 increase.
40.Capital investment proposals may
not
be evaluated by using:
A. The payback period.
B. The return on investment method.
C. The discounted cash flow method.
D. The income statement method.
41.When management considers an investment, they look for the payback period to be:
A. Short.
B. Long.
C. Profitable.
D. Useful.
42.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.
43.Which of the following is generally
not
considered a capital budgeting technique?
A. Payback period.
B. Return on average investment.
C. Return on stockholders' equity.
D. Discounted future cash flows.
44.A cost that has been incurred irrevocably by past actions is a (an):
A. Capital expenditure.
B. Incremental cost.
C. Sunk cost.
D. Fixed cost.