Measurement and Decision Making Final

GB519: Measurement and Decision Making Final

1.Omaha Plating Corporation is considering purchasing a machine for $1,500,000. The machine will generate a constant after-tax income of $100,000 per year for 15 years. The firm will use straight-line (SL) depreciation for the new machine over 10 years with no residual value.
What is the payback period for the new machine, under the assumption that cash inflows occur evenly throughout the year? (Points : 2)

4 years.
5 years.
6 years.
10 years.
15 years.

2.In making capital budgeting decisions, the principal focus is on: (Points : 2)

Cash flows only.
Timing of the cash flows only.
Cash flows and the timing of the cash flows.
Accounting-based measures of revenues and expenses.
Nonfinancial performance indicators.

3.The excess of the present value of future cash flows over the initial investment outlay for a project is the: (Points : 2)

Internal rate of return (IRR) of the project.
Modified internal rate of return (MIRR) on the project.
Book (accounting) rate of return for the project.
Net present value (NPV) of the project.
Modified internal rate of return (MIRR) of the project.

4.Done on a regular basis, relevant cost pricing in special order decisions can erode normal pricing policies and lead to: (Points : 2) Measurement

Overconfidence in decision-making.
A loss in the firm’s profitability.
Conflicting goals between management and sales personnel.
A cost leadership strategy.
Maximization of resources.

5.Which one of the following is most descriptive of strategic analysis? (Points : 2)

Quantitative.
Customer focus.
Short-term focus.
Individual product focus.
Not linked to the firm’s strategy.

6.Which one of the following statements concerning capital budgeting is not true? (Points : 2)

A basic objective underlying capital budgeting is to select assets that will earn a satisfactory return.
Capital budgeting is the process of planning asset investments.
Capital budgeting is based on precise estimates of future events.
Capital budgeting involves estimating the revenues and costs of each proposed project, evaluating their merits, and choosing those worthy of investment.
Capital budgeting uses after-tax cash flows in the analysis of proposed investments.

7.The decision technique that measures the estimated performance of a capital investment by dividing the project’s annual after-tax income by the average investment cost is called the: (Points : 2) Measurement

Break-even point for the project.
Internal rate of return on the proposed investment.
Accounting (book) rate of return on the investment.
Capital asset pricing model.
Profitability index (PI) for the investment.

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8.To make a special order decision, managers need critical information about all the following except: (Points : 2)

Relevant costs.
Prior period operating costs.
Any opportunity costs.
The strategic, competitive environment of the firm.

9.A truck, costing $25,000 and uninsured, was wrecked the very first day it was used. It can either be disposed of for $5,000 cash and be replaced with a similar truck costing $27,000, or rebuilt for $20,000 and be brand new as far as operating characteristics and looks are concerned. The best choice provides a net savings of: (Points : 2) Measurement

$2,000.
$5,000.
$7,000.
$12,000.

10.Which one of the following methods assumes that all interim cash inflows generated by an investment earn a return equal to the internal rate of return (IRR) of the investment? (Points : 2)

Modified internal rate of return (MIRR).
Payback.
Net present value (NPV).
Present value index (PI).
Internal rate of return method (IRR).

11.The opportunity cost of making a component part in a factory with no excess capacity is the: (Points : 2)

Variable manufacturing cost of the component.
Fixed manufacturing cost of the component.
Total manufacturing cost of the component.
Cost of the production given up in order to manufacture the component.
Net benefit foregone from the best alternative use of the capacity required.

12.Generally speaking, when ranking two mutually exclusive investments with different initial amounts, management should give first priority to the project: (Points : 2)

That generates cash flows for the longer period of time.
Whose net after-tax cash flows equal the initial investment outlay.
That has the greater accounting rate of return (ARR).
Whose cash flows vary the least.
That has the greater profitability index (PI).

Measurement

13.Which one of the following is correct for determining relevant costs? (Points : 2)

Differential.

Measurement

Integrative.
Long-term focus.
Subjective.
Opportunistic.

14.The term “breakeven after-tax cash flow” represents: (Points : 2)

A pessimistic estimate in a typical scenario analysis.
An optimistic estimate in a typical scenario analysis.
The amount of after-tax cash flow needed to generate a return equal to a project’s IRR.
The cash flow needed to generate an IRR of zero.
An estimate that can be arrived at using Goal Seek in Excel.

15.The value chain analysis used in connection with the make or buy decision often leads a firm to make use of: (Points : 2)

Activity-based costing.
Cost-volume profit analysis.
Outsourcing activities.
Relevant cost-based pricing.

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GB519: Measurement and Decision Making Final

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