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1. UOP ACC 543 Week 3 Exam New Syllabus
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Which one of the following risks is least likely to
be mitigated by project diversification?
A graph of the relationship between financial risk
and expected financial reward would show a curve
that has a:
Which one of the following identifies the rate of
return required by investors to compensate them
for deferring current consumption when making
an investment?
As the perceived risk of an undertaking increases,
what would be the expected effect on the risk-free
rate of return and the risk premium rate of return?

2. Which one of the following approaches to capital
project evaluation is primarily concerned with the
relative economic ranking of projects?
Major Corp. is considering the purchase of a new
machine for $5,000 that will have an estimated
useful life of five years and no salvage value. The
machine will increase Major's after-tax cash flow
by $2,000 annually for five years. Major uses the
straight-line method of depreciation and has an
incremental borrowing rate of 10%. The present
value factors for 10% are as follows:
Using the payback method, how many years will it
take to pay back Major's initial investment in the
machine?
Which one of the following is a strength of the
payback method of evaluating an investment
project?
What is the investment's payback period?
Capital budgeting is concerned with capital
investments that have which one of the following
characteristics?
A company invested in a new machine that will
generate revenues of $35,000 annually for seven
years. The company will have annual operating

3. expenses of $7,000 on the new machine.
Depreciation expense, included in the operating
expenses, is $4,000 per year. The expected
payback period for the new machine is 5.2 years.
What amount did the company pay for the new
machine?
Which one of the following is not a technique or
approach for evaluating capital budgeting
opportunities?
Using the information above, which one of the
following is the payback period in years for this
project? (Ignore income tax.)
Which of the following statements is correct
regarding the payback method as a capital
budgeting technique?
Which of the following statements concerning the
discounted payback period approach to project
evaluation is/are correct?
Which of the following statements concerning the
discounted payback period method of evaluating
capital projects is/are correct?
Which one of the following is the capital budgeting
evaluation approach that determines the number

4. of periods required for the discounted cash
inflows of a project to equal the discounted cash
outflows?
The discounted payback period approach to
project evaluation is better than the payback
period approach because
A company purchases an item for $43,000. The
salvage value of the item is $3,000. The cost of
capital is 8%. Pertinent information related to this
purchase is as follows:
What is the discounted payback period in years?
Which one of the following methods of evaluating
potential capital projects would take into account
depreciation expense that was non-deductible for
tax purposes?
Which of the following statements concerning the
accounting rate of return approach to evaluating
capital projects is/are correct?
Lin Co. is buying machinery it expects will increase
average annual operating income by $40,000. The
initial increase in the required investment is
$60,000, and the average increase in required
investment is $30,000. To compute the accrual

5. accounting rate of return, what amount should be
used as the numerator in the ratio?
Phillips Company is considering the acquisition of
a new machine that would cost $66,000, has an
expected life of 6 years, and an expected salvage
value of $16,000. The company expects the
machine to provide annual incremental income
before taxes of $7,200. Phillips has a tax rate of
30%. If Phillips uses average values in its
calculations, which one of the following will be the
average accounting rate of return on the machine?
Salem Co. is considering a project that yields
annual net cash inflows of $420,000 for years 1
through 5, and net cash inflow of $100,000 in year
6. The project will require an initial investment of
$1,800,000. Salem's cost of capital is 10%. Present
value information is present below:
What was Salem's expected net present value for
this project?
Yarrow Co. is considering the purchase of a new
machine that costs $450,000. The new machine
will generate net cash flow of $150,000 per year
and net income of $100,000 per year for five years.
Yarrow's desired rate of return is 6%. The present

6. value factor for a five-year annuity of $1,
discounted at 6%, is 4.212. The present value
factor of $1, at compound interest of 6% due in
five years, is 0.7473. What is the new machine's
net present value?
A corporation is considering purchasing a machine
that costs $100,000 and has a $20,000 salvage
value. The machine will provide net annual cash
inflows of $25,000 per year and has a six-year life.
The corporation uses a discount rate of 10%. The
discount factor for the present value of a single
sum six years in the future is 0.564. The discount
factor for the present value of an annuity for six
years is 4.355. What is the net present value of the
machine?
Which of the following is an advantage of net
present value modeling?
A project should be accepted if the present value of
cash flows from the project is:
The following information pertains to Krel Co.'s
computation of net present value relating to a
contemplated project:
Discounted expected cash inflows $1,000,000
Discounted expected cash outflows 700,000
Net present value is:

7. Tam Co. is negotiating for the purchase of
equipment that would cost $100,000, with the
expectation that $20,000 per year could be saved
in after-tax cash costs if the equipment is acquired.
The equipment's estimated useful life is 10 years,
with no residual value, and would be depreciated
by the straight-line method. Tam's predetermined
minimum desired rate of return is 12%. Present
value of an annuity of 1 at 12% for 10 periods is
5.65. Present value of 1 due in 10 periods at 12%
is .322.
Net present value is
A project's net present value, ignoring income tax
considerations, is normally affected by the
Smarti Co. has determined the following data in
connection with its evaluation of a capital
investment project:
Smarti uses straight-line depreciation for capital
investments of this type. Excerpts from present
value tables showed the following:
Using the above information, which one of the
following is the present value of total estimated
future cash inflows and savings? (Ignore income
taxes.)

8. An investment in a new product will require an
initial outlay of $20,000. The cash inflow from the
project will be $4,000 a year for the next six years.
The payment will be received at the end of each
year. What is the net present value of the
investment at 8% using the correct factor from
below?
Oak Company bought a machine that they will
depreciate on a straight-line basis over an
estimated life of seven years. The machine has no
salvage value. They expect the machine to
generate after-tax net cash inflows from
operations of $110,000 in each of the seven years.
Oak's minimum rate of return is 12%. Information
on present value factors is as follows:
Assuming a positive net present value of $12,000,
what was the cost of the machine?
Which project would provide the largest after-tax
cash inflow?
Net present value as used in investment decision-
making is stated in terms of which of the following
options?
The calculation of depreciation is used in the
determination of the net present value of an
investment for which of the following reasons?

9. The decline in the value of the investment should
be reflected in the determination of net present
value.
Given a 10% discount rate with cash inflows of
$3,000 at the end of each year for five years and an
initial investment of $11,000, what is the net
present value?
The discount rate is determined in advance for
which of the following capital budgeting
techniques?
Which of the following metrics equates the present
value of a project's expected cash inflows to the
present value of the project's expected costs?
A client wants to know how many years it will take
before the accumulated cash flows from an
investment exceeds the initial investment, without
taking the time value of money into account.
Which of the following financial models should be
used?
Which of the following decision-making models
equates the initial investment with the present
value of the future cash inflows?

10. Which of the following events would decrease the
internal rate of return of a proposed asset
purchase?
Polo Co. requires higher rates of return for
projects with a life span greater than five years.
Projects extending beyond five years must earn a
higher specified rate of return. Which of the
following capital budgeting techniques can readily
accommodate this requirement?
Which of the following limitations is common to
the calculations of payback period, discounted
cash flow, internal rate of return, and net present
value?
Which of the following rates is most commonly
compared to the internal rate of return to evaluate
whether to make an investment?
If income taxes are ignored, which of the following
methods of evaluating capital investment projects
includes the use of depreciation expense?
Tam Co. is negotiating for the purchase of
equipment that would cost $100,000, with the
expectation that $20,000 per year could be saved
in after-tax cash costs if the equipment is acquired.
The equipment's estimated useful life is 10 years,

11. with no residual value, and it would be
depreciated by the straight-line method. Tam's
predetermined minimum desired rate of return is
12%. Present value of an annuity of 1 at 12% for
10 periods is 5.65. Present value of 1 due in 10
periods at 12% is .322.
In estimating the internal rate of return, the
factors in the table of present values of an annuity
should be taken from the columns closest to
In evaluating the economic feasibility of a capital
project, the discount rate (or hurdle rate of return)
must be determined in advance when using the:
Which of the following capital budgeting
techniques, if any, implicitly assumes that all cash
inflows are immediately reinvested to earn a
return for the company?
Which of the following phrases defines the
internal rate of return on a project?
Neu Co. is considering the purchase of capital
equipment that has a positive net present value
based on Neu's 12% hurdle rate.
The internal rate of return would be:
Which of the following characteristics represent
an advantage of the internal rate of return

12. technique over the accounting rate of return
technique in evaluating a project?
I. Recognition of the project's salvage value.
II. Emphasis on cash flows.
III. Recognition of the time value of money.
How are the following used in the calculation of
the internal rate of return of a proposed project?
Ignore income tax considerations.
Which of the following statements about
investment decision models is true?
When estimating cash flow for use in capital
budgeting, depreciation is
What is an internal rate of return?
Which of the following is a limitation of the
profitability index?
What is the formula for calculating the
profitability index of a project?
If it is determined that a project investment is
expected to generate $1.20 in present value for
each $1.00 invested, which one of the following
was most likely used to reach that conclusion?

13. Disco is considering three capital projects that
have the following costs and net present values
(NPV):
Which one of the projects, if any, is not
economically feasible?
Using the profitability index, which project, if any,
would be ranked as the most desirable?
Which one of the following represents the formula
used to calculate the profitability index for
ranking projects?
Which one of the following methods of evaluating
investment projects is most likely to be least
acceptable for making project ranking decisions?
Which of the following methods should be used if
capital rationing needs to be considered when
comparing capital projects?
Which of the following statements is correct
regarding financial decision making?
Which one of the following methods of evaluating
investment projects is most likely to be used to
rank projects competing for limited capital
investment funds?

14. On August 31, Year 1, Ashe Corp. adopted a plan to
accumulate $1,000,000 by September 1, Year 5.
Ashe plans to make four equal annual deposits to a
fund that will earn interest at 10% compounded
annually.
Ashe will make the first deposit on September 1,
Year 1. Future value and future amount factors are
as follows:
Which one of the following would be the amount of
annual deposits Ashe should make (rounded)?
On November 1, Year 1, a company purchased a
new machine that it does not have to pay for until
November 1, Year 3. The total payment on
November 1, Year 3 will include both principal and
interest. Assuming interest at a 10% rate, the cost
of the machine would be the total payment
multiplied by what time value of money concept?
Which one of the following kinds of tables most
likely would be used to determine the current
worth of five equal amounts to be received at the
end of each of the next five years.
Pole Co. is investing in a machine with a 3-year life.
The machine is expected to reduce annual cash
operating costs by $30,000 in each of the first 2
years and by $20,000 in year 3. Present values of
an annuity of $1 at 14% are:

15. Using a 14% cost of capital, what is the present
value of these future savings?
Which of the following changes would result in the
highest present value?
Which one of the following sets of interest (or
discount) rates will give the greater present value
of $1.00 and greater future value of $1.00?
On June 30, 2012, a company is preparing the cash
budget for the third quarter. The collection
pattern for credit sales has been 60% in the month
of sale, 30% in the first month after sale, and the
rest in the second month after sale. Uncollectible
accounts are negligible. There are cash sales each
month equal to 25% of total sales. The total sales
for the quarter are estimated as follows: July,
$30,000; August, $15,000; September, $35,000.
Accounts receivable on June 30, 2012, were
$10,000. What amount would be the projected
cash collections for September?
The regression analysis results for ABC Co. are
shown as y = 90x + 45. The standard error (S ) is
30 and coefficient of determination (r ) is 0.81.
The budget calls for production of 100 units. What
is ABC’s estimate of total costs?

16. The difference between standard hours at
standard wage rates and actual hours at standard
wage rates is referred to as which of the following
types of variances?
The production volume variance is due to
Which of the following scenarios would encourage
a company to use short-term loans to retire its ten-
year bonds that have five years until maturity?
Harvey Co. is evaluating a capital investment
proposal for a new machine. The investment
proposal shows the following information:
If acquired, the machine will be depreciated using
the straight-line method. The payback period for
this investment is
A company purchases an item for $43,000. The
salvage value of the item is $3,000. The cost of
capital is 8%. Pertinent information related to this
purchase is as follows:
What is the discounted payback period in years?
The Bread Company is planning to purchase a new
machine which it will depreciate on a straight-line
basis over a 10-year period. A full year’s
depreciation will be taken in the year of

17. acquisition. The machine is expected to produce
cash flow from operations, net of income taxes, of
$3,000 in each of the 10 years.; The accounting
(book value) rate of return is expected to be 10%
on the initial increase in required investment. The
cost of the new machine will be
Assume that Trayco’s marginal tax rate is 30% and
all cash flows come at the end of the year. In
evaluating the decision how is the additional
investment in working capital considered?
Which of the following decision-making models
equates the initial investment with the present
value of the future cash inflows?
The company has $2,000,000 of financing available
for new investment projects. The investment
project with the highest excess profitability index
is
Which one of the following methods of evaluating
investment projects is most likely to be used to
rank projects competing for limited capital
investment funds?
Axel Corp. is planning to buy a new machine with
the expectation that this investment should earn a
discounted rate of return of at least 15%. This

18. machine, which costs $150,000, would yield an
estimated net cash flow of $30,000 a year for 10
years, after income taxes. In order to determine
the net present value of buying the new machine,
Axel should first multiply the $30,000 by which of
the following factors?