Capital Budgeting and Cost Benefit Analysis

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Correct options are highlighted when revealed.

1.Given a tax operating income of $885,000 annually and a net initial investment of $35,750,000, what is the percentage increase in average return?

0.475% annually4.475% annually3.475% annually2.475% annually

2.Based on the net present value criterion, which projects should be considered acceptable?

Projects with a negative net present valueProjects that have a net present value equal to zeroProjects with a net present value greater than zeroBoth projects with zero and positive net present valuesNone of the above

3.What type of cash flows are utilized in both the net present value and internal rate of return methods?

linear cash flowsdiscounted cash flowsminimal cash flowsprojected cash flows

4.What is obtained by dividing the sum of recovered working capital and the net initial investment by 2?

growth in operating profitaverage investment throughout five yearsmean capital employedtypical rate of return

5.What term describes the project's anticipated financial loss or gain calculated by discounting all cash inflows and outflows at the required rate of return?

net present valuenet future valuenet discounted valuenet recorded cash value

6.Which rate of return consists of both the risk-free component and the business risk component?

nominal return rateaccounting rate of return based on accrualsreal rate of returnexpected rate of return

7.When calculating for a steady annual increase in future cash flows, the payback period is multiplied to determine __________?

present value of cashnet initial investmenttotal future valuemonetary time value

8.Which dimensions are considered in the dimensional analysis of cost?

Horizontal dimension acrossHorizontal dimension upwardVertical dimension upwardBoth horizontal across and vertical upward dimensions

9.What is the term for the rate of return that compensates for investment risk and the loss of purchasing power due to inflation?

nominal rate of returnaccrual accounting rate of returnreal rate of returnrequired rate of return

10.Which technique determines the duration required to recover the initial investment based on projected cash inflows?

net present value approachpayback period methodlump sum cash flow techniquestreamlined cash flow analysis

11.Given a payback period of 4 years and consistent annual cash flow increments of $2,750,000, what is the total initial investment amount?

$10,511,000$12,105,000$1,100,000$11,000,000

15.Given a net initial investment of $985,000 and returned working capital amounting to $7,500, what is the average investment over a period of five years?

$596,300$485,300$496,250$486,250

16.Given an initial investment of $765,000 and a payback period of 4.5 years, what is the amount of the increase in future cash flow?

$5,645,000$6,442,500$3,442,500$5,442,500

17.Given a net initial investment of $6,850,000 and consistent annual cash inflows of $2,050,000, what is the payback period?

18.To determine __________, the net initial investment is divided by the consistently rising future cash flows.

discount periodinvestment durationpayback periodprofit period