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Cost Accounting 101 Practice Test: Capital Budgeting and Cost Analysis
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Capital budgeting is a cost-benefit analysis that helps companies decide if long-term investments are profitable. It involves evaluating costs and benefits over a longer period of time, and placing greater emphasis on the time value of money. Capital budgeting can involve acquiring land, purchasing fixed assets, research and development, or expansion.  The capital budgeting process typically includes the following steps: Determine the total amount of the investment Determine the cash flows that the investment will return Determine the residual/terminal value Calculate the annual cash... Show more
Cost Accounting 101 Practice Test: Capital Budgeting and Cost Analysis
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25 Questions

1. The stage of the capital budgeting process during which marketing is queried for potential revenue numbers is the:
2. Which of the following are NOT included in the formal financial analysis of a capital budgeting program?
3. The relevant terminal disposal price of a machine equals the:
4. A 'what-if' technique that examines how a result will change if the original predicted data are NOT achieved or if an underlying assumption changes is called:
5. There is an INCONSISTENCY between using the net present value method as best for capital budgeting decisions and then using a different method to evaluate performance.
6. The use of an accelerated method of depreciation for tax purposes would usually decrease the present value of the investment.
7. An example of an intangible asset would be a corporation's customer base.
8. The minimum annual acceptable rate of return on an investment is the:
9. Managers using discounted cash flow methods to make capital budgeting decisions make the same decisions that they would make in using the accrual accounting rate-of-return methods.
10. An important advantage of the net present value method of capital budgeting over the internal rate-of-return method is:
11. The method that measures the time it will take to recoup, in the form of future cash inflows, the total dollars invested in a project is called:
12. Which of the following is NOT an appropriate term for the required rate of return?
13. The most significant manager evaluation and goal congruence issues arise because of inconsistencies between the following methods of choosing among alternatives for capital budgeting purposes:
14. The accrual accounting rate-of-return method is similar to the internal rate-of-return method because both methods calculate a rate-of-return percentage.
15. An example of a sunk cost in a capital budgeting decision for new equipment is:
16. The four typical categories of cash flow for an investment project are: (1) net initial investment, (2) net income, (3) after tax cash flow from operations, and (4) after tax cash flow from terminal disposal of an asset.
17. Comparison of the actual results for a project to the costs and benefits expected at the time the project was selected is referred to as:
18. A manager who uses discounted cash flow methods to make capital budgeting decisions does NOT face goal-congruence issues if the accrual accounting rate of return is used for performance evaluation.
19. The identify projects stage of capital budgeting gathers information from all parts of the value chain to evaluate alternative projects.
20. Deducting depreciation from operating cash flows would result in counting the initial investment twice in a discounted cash flow analysis.
21. The definition of an annuity is:
22. Which of the following involves significant financial investments in projects to develop new products, expand production capacity, or remodel current production facilities?
23. If the net present value for a project is zero or positive, this means that the:
24. Relevant cash flows are expected future cash flows that differ among the alternative uses of investment funds.
25. All of the following are methods that aid management in analyzing the expected results of capital budgeting decisions EXCEPT:

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