# ch21 sample questions

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CHAPTER 21!
Sample Exam Questions!

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1. [CPA Adapted] If the algebraic sum of the present values of all cash flows related to a proposed capital expenditure discounted at the company’s required rate of return is positive, it indicates that the!
A. resultant amount is the maximum that should be paid for the asset.!
B. discount rate used is not the proper required rate of return for this company.!
C. investment is the best alternative.!
D. return on the investment exceeds the company’s required rate of return.!

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The following data apply to questions 2 through 6.!
The Hilltop Corporation is considering (as of 1/1/08) the replacement of an old machine that is currently being used. The old machine is fully depreciated but can be …show more content…

.75!
.71!
.68 !
4!
.79!
.74!
.68!
.64!
.59 !
5!
.75!
.68!
.62!
.57!
.52 !
Present Value of an Annuity of \$1.00 Received at the End of Each Period!
Period! 6%!
8%!
10%! 12%! 14%! !
1!
0.94! 0.93! 0.91! 0.89! 0.88!
2!
1.83! 1.78! 1.73! 1.69! 1.65!
3!
2.67! 2.58! 2.49! 2.40! 2.32!
4!
3.47! 3.31! 3.17! 3.04! 2.91!
5!
4.21! 3.99! 3.79! 3.61! 3.43!

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2. [CMA Adapted] If Hilltop requires investments to earn an 8 percent return, the net present value for replacing the old machine with the new machine is!
A. \$100,000.!
B. \$50,000.!
C. (\$63,000).!
D. \$46,500.!

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3. [CMA Adapted] The internal rate-of-return, to the nearest percent, to replace the old machine is!
A. 12 percent.!
B. 10 percent.!
C. 8 percent.!
D. 6 percent.!

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4. [CMA Adapted] The payback period to replace the old machine with the new machine is!
A. 3.3 years.!
B. 3.0 years.!
C. 4.0 years.!
D. 2.5 years.!

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5. The discounted payback at a required rate of return of 8 percent is!
A. 4 years!
B. 3 years!
C. 3.57 years!
D. 1.5 years!

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6. The accrual accounting rate of return on the initial investment to the nearest percent is!
A. 0 percent.!
B. 11.0 percent.!
C. 5.6 percent.!
D. 30 percent.!

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7. [CPA Adapted] The assumption that cash flows are reinvested at the rate earned by the investment belongs to which of the following capital budgeting methods?!
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Internal rate!
Net present !
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of return
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value! !
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A. !
No!
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No!
B. !
No!
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Yes!
C. !
Yes!
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Yes!
D. !
Yes!
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No!

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