Showing 62-63 out of 86
21.doc-Accounting, 9e, Global Edition (Horngren) C...
21.doc-Accounting, 9e, Global Edition (Horngren) Chapter
21.doc-Accounting, 9e, Global Editi...
21.doc-Accounting, 9e, Global Edition (Horngren) Chapter
Page 62
17) Allied Chemicals has a hurdle rate of 9% for new investments.
The production manager suggests that an
equipment upgrade costing $84,460 would yield net cash flows of $40,000 in the first year, $30,000 in the second
year, $20,000 in the third year, and $10,000 in the fourth and final year.
Present Value of
$1
5%
6%
7%
8%
9%
10%
1
0.952
0.943
0.935
0.926
0.917
0.909
2
0.907
0.890
0.873
0.857
0.842
0.826
3
0.864
0.840
0.816
0.794
0.772
0.751
4
0.823
0.792
0.763
0.735
0.708
0.683
5
0.784
0.747
0.713
0.681
0.650
0.621
The investment meets the company's hurdle rate requirement and should be adopted.
Answer:
TRUE
Explanation:
Calculations:
$40,000
0.917
36,680
$30,000
0.842
25,260
$20,000
0.772
15,440
$10,000
0.708
7,080
(84,460)
0
Diff: 3
LO:
21-4
EOC Ref:
E21-24
AACSB:
Analytic Skills
AICPA Business:
Critical Thinking
AICPA Functional:
Measurement
18) If an investment project's IRR is higher than the company's hurdle rate, the company should go forward with the
investment.
Answer:
TRUE
Diff: 1
LO:
21-4
EOC Ref:
E21-24
AACSB:
Reflective Thinking
AICPA Business:
Critical Thinking
AICPA Functional:
Measurement
19) The rate of return and payback methods DO NOT take into consideration the time value of money.
Discounted
cash flow methods DO make use of the time value of money.
Answer:
TRUE
Diff: 1
LO:
21-4
EOC Ref:
E21-22
AACSB:
Analytic Skills
AICPA Business:
Critical Thinking
AICPA Functional:
Measurement
62
Copyright © 2012 Pearson Education
Page 63
20) Which of the following is TRUE of discounted cash flow methods like NPV and IRR?
A) They use simple interest calculations.
B) They use net income amounts rather than cash flows.
C) They focus on the payback period.
D) They incorporate compound interest calculations.
Answer:
D
Diff: 1
LO:
21-4
EOC Ref:
E21-22
AACSB:
Analytic Skills
AICPA Business:
Critical Thinking
AICPA Functional:
Measurement
21) Compound interest used in discounted cash flow calculations assumes that companies will reinvest future cash
flows when they are received.
Answer:
TRUE
Diff: 1
LO:
21-4
EOC Ref:
E21-22
AACSB:
Analytic Skills
AICPA Business:
Critical Thinking
AICPA Functional:
Measurement
22) Which of the following is TRUE of discounted cash flow methods like NPV and IRR?
A) They use simple interest calculations.
B) They assume that cash flows will be reinvested when received.
C) They focus on the payback period.
D) They must follow the rules of GAAP.
Answer:
B
Diff: 1
LO:
21-4
EOC Ref:
E21-22
AACSB:
Analytic Skills
AICPA Business:
Critical Thinking
AICPA Functional:
Measurement
23) Cash flows used in NPV and IRR analyses include all of the following EXCEPT:
A) future increased sales.
B) future cost savings.
C) depreciation expense.
D) residual value.
Answer:
C
Diff: 1
LO:
21-4
EOC Ref:
E21-22
AACSB:
Analytic Skills
AICPA Business:
Critical Thinking
AICPA Functional:
Measurement
63
Copyright © 2012 Pearson Education
Ace your assessments! Get Better Grades
Browse thousands of Study Materials & Solutions from your Favorite Schools
San Jose State University
San_Jose_State_University
School:
Managerial_Accounting
Course:
Great resource for chem class. Had all the past labs and assignments
Leland P.
Santa Clara University
Introducing Study Plan
Using AI Tools to Help you understand and remember your course concepts better and faster than any other resource.
Find the best videos to learn every concept in that course from Youtube and Tiktok without searching.
Save All Relavent Videos & Materials and access anytime and anywhere
Prepare Smart and Guarantee better grades
Know more
Students also viewed documents
lab 18.docx
lab_18.docx
Course
Course
3
Module5QuizSTA2023.d...
Module5QuizSTA2023.docx.docx
Course
Course
10
Week 7 Test Math302....
Week_7_Test_Math302.docx.docx
Course
Course
30
Chapter 1 Assigment ...
Chapter_1_Assigment_Questions.docx.docx
Course
Course
5
Week 4 tests.docx.do...
Week_4_tests.docx.docx
Course
Course
23
Week 6 tests.docx.do...
Week_6_tests.docx.docx
Course
Course
106
