Khenett Joyce A. Sarmiento.

BSA IV- Nativity

Multiple Choice

13-1 Which of the following is not a step in the short run decision making model?

E. All of these are steps in the short run decision making model

13-2 Cost that cannot be affected by any future actions are called

B. Sunk Costs

13-3 Refer to the information for Sandy above. Which of the following costs is irrelevant to Sandy’s

decision to stay in the apartment or move to the house?

E. The last two months of rent in the apartment

13-4 Refer to he information for Sandy above. Which of the following is a qualitative factor?

C. The noise in the apartment house

13-5 Refer to the information for Sandy above. Suppose that the apartment building was within
walking distance to campus and there house was five miles away. Sandy does not own a car.

How would that affect her decision?

B. It would make the apartment more desirable

13-6 Which of the following statements is false?

E. All of the above

13-7 In a make or buy decision,

C. The company would consider the purchase price of the externally provided good to be

relevant

13-8 Carroll Company, a manufacturer of vitamins and minerals, has been asked by a large drugstore
chain to provide bottles of vitamin E. The bottles would be labeled with the name of the drugstore
chain, and the chain would pay Carroll $2.30 per bottle rather than the $3.00 regular price. Which
type of decision this is?

B. Special Order

13-9 Jennings Hardware Store marks up its merchandise by 30%. If a part costs $25.00, which of the
following is true?

C. The price is $32.50

Khenett Joyce A. Sarmiento. BSA IV- Nativity

13-10 When a company faces a production constraint or scarce resource, it is important to

C. Produce the product with the highest contribution margin per unit of scarce resource

13-11 In the keep or drop decision, the company will find which of the following income statement
formats more useful?

A. A segmented income statement in the contribution margin format

13-12 In the sell or process further decision,

D. The most profitable outcome may be to further process some separately identifiable products
beyond the split off point, but sell others at split off point

Multiple Choice

14-1 Capital investments should

C. Earn back their original capital outlay plus a reasonable return

14-2 To make a capital investment decision, a management must

E. Do all of these

14-3 Mutually exclusive capital budgeting projects are those that

D. If accepted preclude the acceptance of all other competing projects

14-4 An investment of $6,000 produces a net annual cash inflow of $2,000 for each of 5 years. What is
the payback period?

D. Cannot be determined

14-5 An investment of $1,000 produces a net cash inflow of $500 in the first year and $750 in the
second year. What is the payback period?

A. 1.67 years

14-6 The payback period suffers from which of the following deficiencies?

D. It ignores the financial performance of a project beyond the payback period

14-7 The ARR has one specific advantage not possessed by the payback period in that

E. Considers the profitability of a project beyond the payback period

Khenett Joyce A. Sarmiento. BSA IV- Nativity

14-8 An investment of $2,000 provides an average net income of $400. Depreciation is $40 per year
with 0 salvage value. The ARR using the original investment is

C. 20%

14-9 If the NPV is positive, it signals

D. All of these

14-10 NPV measures

E. All of these

14-11 NPV is calculated by using

A. The required rate of return

14-12 Using NPV, a project is rejected if it is

B. Negative

14-13 If the present value of future cash flows is $4,200 for an investment that requires an outlay of
$3,000, the NPV

C. is $1,200

14-14 Assume that an investment of $1,000 produces a future cash flow of $1,000. The discount factor
for this future cash flow is 0.80. The NPV is

C. ($200)

14-15 Which of the following is not true regarding the IRR?

E. The IRR is the most reliable of the capital budgeting methods

14-16 Using IRR, a project is rejected if the IRR

B. Is less than the required rate of return

14-17 A postaudit

E. Does all of this

14-18 Postaudits of capital projects are useful because

D. They help to ensure that resources are used widely

Khenett Joyce A. Sarmiento. BSA IV- Nativity

14-19 For competing projects, NPV is preferred to IRR because

C. Choosing the project with the largest NPV maximizes the wealth of the shareholders

14-20 Assume that there are two competing projects, A and B. Project A has an NPV of $1,000 and an
IRR of 15%. Project B has an NPV of $800 and an IRR of 20%. Which of the following is true?

A. Project A should be chosen because it has a higher NPV