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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 reason to have a post-investment audits is:
2. Capital investment decisions that are strategic in nature:
3. Which capital budgeting technique(s) measure all expected future cash inflows and outflows as if they occurred at a single point in time?
4. The three common discounted cash flow methods are net present value, internal rate of return, and payback.
5. The payback method of capital budgeting approach to the investment decision highlights:
6. Which of the following results of the net present value method in capital budgeting is the LEAST acceptable?
7. In situations where the required rate of return is NOT constant for each year of the project, it is advantageous to use:
8. An example of a sunk cost in a capital budgeting decision for new equipment is:
9. Shirt Company wants to purchase a new cutting machine for its sewing plant. The investment is expected to generate annual cash inflows of $150,000. The required rate of return is 12% and the current machine is expected to last for four years. What is the maximum dollar amount Shirt Company would be willing to spend for the machine, assuming its life is also four years? Income taxes are not considered.
10. The two factors capital budgeting emphasizes are:
11. All of the following are methods that aid management in analyzing the expected results of capital budgeting decisions EXCEPT:
12. For capital budgeting decisions, the use of the accrual accounting rate of return for evaluating performance is often a stumbling block to the implementation of the:
13. 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.
14. A capital budget spans only a one-year period.
15. The payback method is only useful when the expected cash flows in the later years of the project are highly uncertain.
16. The obtain information stage of capital budgeting gathers information from all parts of the value chain to evaluate alternative projects.
17. Capital budgeting is the process of making long-run planning decisions for investments in projects.
18. The focus in capital budgeting should be on:
19. In using the net present value method, only projects with a zero or positive net present value are acceptable because:
20. Which of the following is NOT an appropriate term for the required rate of return?
21. Net present value is calculated using the:
22. Discounted cash flow methods for capital budgeting focus on:
23. In capital budgeting, a project is accepted only if the internal rate of return equals or:
24. Upper Darby Park Department is considering a new capital investment. The following information is available on the investment. The cost of the machine will be $72,096. The annual cost savings if the new machine is acquired will be $20,000. The machine will have a 5-year life, at which time the terminal disposal value is expected to be zero. Upper Darby Park is assuming no tax consequences. Upper Darby Park has a 10% required rate of return. What is the payback period on this investment?
25. An example of an intangible asset would be a corporation's customer base.

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