MULTIPLE CHOICE THEORY

Choose the best answer. 1 point each

The following statements refer to the accounting rate of return (ARR):

[1] It is based on the accrual basis, not the cash basis.
[2] It does not consider the time value of money.
[3] The profitability of the project is not considered.
From the given statements, which are considered limitations of the ARR?
Statements 2 and 3 only.
Statements 3 and 1 only.
All 3 statements
Statements 1 and 2 only.

In capital budgeting decisions, the following items are considered among others:
1. Cash outflow for the investment.
2.Increase in working capital requirement.
3. Profit on sale of old asset.
4. Loss on write-off of old asset.
For which of the above items would taxes be relevant?
Items 1 and 3 only.
Items 3 and 4 only.
All items.
Items 1, 3 and 4 only.

If income tax considerations are ignored, how is depreciation used in the following capital budgeting
techniques?
Internal rate of return, included; Accounting rate of return, excluded.
Internal rate of return, excluded; Accounting rate of return, included.
Internal rate of return, excluded; Accounting rate of return, excluded.
Internal rate of return, included; Accounting rate of return, included.

A common assumption in capital budgeting is that cash flows occur in lump sums at the end of
individual years during the life of an investment project when in fact they flow more or less
continuously during those years. Such assumption:
Results in understated estimates of NPV.
Is done because present value tables for continuous flows cannot be constructed.
Will result in inconsistent errors being made on estimating NPVs such that projects cannot be evaluated reliably.
Results in higher estimates for the IRR on the investment.

The capital budget is a:

Plan to insure that there are sufficient funds available for the operating needs of the company.
Exercise that sets the long-range goals of the company including the consideration of external influences.
Plan that coordinates and communicates a company's plan for the coming year to all departments and divisions.
Plan that assesses the long term needs of the company for plant and equipment purchases.
A company is evaluating an investment with a useful life of six years. As part of the acquisition, a
P200,000 investments in working capital is required. In a discounted cash flow analysis, the
investment in working capital:
Should be amortized over the life of the asset.
Should be disregarded because no cash is involved.
Should be treated as a recurring annual cash flow that is released at the end of the six years.
Should be treated as an immediate cash outflow that is released at the end of the six years.

The ranking of mutually exclusive investment determined using the internal rate of return method
and the net present value method may be different when:
Multiple projects have unequal lives and the size of the investment for each project.
The required rate of return is equal to the internal rate of return.
The lives of the multiple projects are equal and the size of the required investments are equal.
The required rate of return is higher than the internal rate of return.

If an investment project has a profitability index of 1.15. the

Project's internal rate of return is 15%
Project's cost of capital is greater than its internal rate of return.
Project's internal rate of return exceeds its net present value.
Net present value of the project is positive.

Which of the following would cause a project to have a lower net present value, thereby making the
project less appealing?
The discount rate increases
The cash flows are extended over a longer period of time.
The investment cost decreases without affecting the expected income and life of the project.
The cash flows are accelerated and the project life is correspondingly shortened.

As a capital budgeting technique, the payback period considers depreciation expense and time
value of money as follows:
Both are relevant
Both are irrelevant
Only time value of money is relevant
Only depreciation is relevant

Several proposed capital projects, which are economically acceptable, have to be ranked due to
constraints in financial resources. In ranking those projects, which among the following statements
is the least pertinent?
If the internal rate of return method is used in the capital rationing problem, the higher the rate, the better the
project.
In selecting the required rate of return, one may either calculate the organization's cost of capital or use a rate
generally acceptable in the industry.
A ranking procedure on the basis of quantitative criteria may be established by specifying a minimum desired
rate of return, which is the rate used in calculating the net present value of each project.
If the net present value is used, the profitability index is calculated to rank the projects. The lower the
index, the better the project.
What is the effect of an increase in the cost of capital on the payback period, profitability index and
accounting rate of return?
Payback period will increase, Profitability will decrease, and Accounting rate of return will increase.
Payback period will not change, Profitability will decrease, and Accounting rate of return will not change.
Payback period will not change, Profitability will increase, and Accounting rate of return will decrease.
Payback period will decrease, Profitability will increase, and Accounting rate of return will decrease.

A company is considering the replacement of their computer system. Taking into account the
income tax effect and considering the carrying value of the old system (CVOS) and the salvage
value of the new system (SVNS), which combination below applies to the decision making process?
CVOS, irrelevant and SVNS, irrelevant
CVOS, irrelevant and SVNS, relevant
CVOS, relevant and SVNS, irrelevant
CVOS, relevant and SVNS, relevant

When using the discounted cash flow methods to evaluate the desirability of a project, which of the
following factors is least important?
The method of financing the project under consideration.
The impact of the project on income taxes to be paid.
The timing of cash flows relating to the project.
The amount of cash flows relating to the projects.

MULTIPLE CHOICE PROBLEM

Choose the best answer. 2 points each

Based on the information of four investment proposals, rank the proposals in terms of NPV index.

3, 2, 1, 4
2, 3, 1, 4
2, 1, 3, 4
4, 1, 2, 3

The Bokawkan company is considering to purchase a new machine. Annual cash returns on
investment cost of P1,200,000 is expected to be at P220,000. Useful is estimated at 8 years. The
company's cost of capital is 14% and income tax rate is 35%. What is the payback reciprocal of the
investment?
20.5%
18.3%
11.9%
22.2%
Enerlam Company purchased a machine with an estimated useful life of seven years. The machine
will generate cash inflows of P9,000 each year over the next seven years. If the machine has no
salvage value at the end of seven years, and assuming the company's discount rate is 10%, what is
the purchase price of the machine if the net present value of the investment is P17,000?
P43,812
P26,812
P17,000
P22,195

An investment project has the following characteristics:

Cost, P22,820;
Annual cash inflows, P5,000;
internal rate of return, 12%.
What is the useful life of the project?
7 years
12 years
4.56 years.
It is impossible to determine from the data given.

Abanao Company is planning to purchase an new machine for the amount of P90,000, with an
estimated useful life of 5 years and a salvage value of P10,000. The machine will be depreciated
using the straight line method. The machine is expected to produce cash flows from operations, net
of income taxes of P36,000 a year in the next 5 years. The machine's salvage value is P20,000 in
years 1 and 2 and P15,000 in years 3 and 4. What will be the bailout period for the new machine?
1.4 years
2.2 years
1.9 years
3.4 years

Magsaysay Company is evaluating an investment that would have an eight-year life and would
require a P300,000 purchase of equipment which has no salvage value. The project has the
following additional information:
Sales, P500,000;
Cash Variable Expenses, P200,000;
Fixed cash expenses, P150,000;
Depreciation expense, P37,500.
If the company's required rate of return is 10%, what is the payback period of the investment.
3 years
2 years
2.5 years
2.67 years

Assumption Corporation is considering replacing an obsolete machine with a new machine. The
new machine would cost P250,000 and would have a ten-year useful life. The new machine would
cost P12,000 per year to operate and maintain, but would save P55,000 per year in labor and other
costs. The old machine can be sold now for P10,000. The simple rate of return on the new machine
is closest to:
17.9%
7.5%
22.0%
7.2%

Kapekape Corporation produces and sells coffee. It currently roasts coffee using a manual
operation but is considering the purchase of machinery to automate its operations. The machine will
cost P420,000 and has a useful life of 12 years. The expected annual revenue (50,000 jars) is
P210,000 whether the company uses the manual or the automated operation. Under the current set
up, variable costs amount to P135,000 while variable costs under the automated operation is
expected to be P42,000. Annual fixed costs in the manual operations is expected to be at P30,000
but this will increase by P42,000 if the operation is automated. The company's discount rate is 12
and it uses the straight-line method of depreciation. What will be the effect on the net present value
of the decision to automate operations if 60,000 jars instead of 50,000 jars are expected to be sold
each year? (Assume no change in cost structure or selling price.)
no effect
P52,030 decrease
P63,179 increase? D ko nakuha exact, yan lang pinakamalapit 😊
P115,208 increase

LONG PROBLEM
GENERAL RULE:
1.REMOVE ALL DESCRIPTIONS (PESO SIGN, COMMA, ETC).
2.ROUND OFF ONLY ON YOUR FINAL ANSWER TO TWO DECIMAL PLACES.
3. FOLLOW ANY SPECIFIC INSTRUCTION PROVIDED IN THE PROBLEM.

3,400,000
Your answer
PRESENT YOUR ANSWER AS (CAPITAL LETTERS ONLY): PROJECT-B-4.55

Project D – 3.26
Your answer
PRESENT THE PROJECTS TO BE ACCEPTED WITH THE HIGHEST IRR TO THE LEAST IRR
(CAPITAL LETTER ONLY WITH NO SPACES PROVIDED (EX: A-B-C-D)

pass talaga sa IRR!!!!

Your answer
For computation use PVF rounded to three decimal places.
5 points

42,357
Your answer
REMOVE PERCENTAGE SIGN PRESENT 33.333333% AS 33.33
5 points

PWEDENG WAG NALANG IRR!!!

Your answer