90.2K

Verified Solution

Link Copied!

Information for Tube division is as follows:

Net earnings for division $20,000

Asset base for division $50,000

Target rate of return 16%

Operating income margin 12%

Weighted average cost of capital 8%

What is Tube's residual income?

A. $16,000

B. $ 8,000

C. $13,000

D. $12,000

Which of the following processes involve the development of capital budgeting project performance reports that compare planned to actual results?

A. Annual reviews

B. Financials statement audits

C. Compliance audits

D. Post-audit reviews

Clarinet Publishing is considering the purchase of a used printing press costing $40,000. The printing press would generate a net cash inflow of $10,000 a year for 10 years. At the end of 10 years, the press would have no salvage value. The company's cost of capital is 10 percent. The company uses straight-line depreciation.

The project's accounting rate of return on the initial investment is:

A. 19 percent

B. 15 percent

C. 32 percent

D. 75 percent

This capital budgeting models assumes all net cash inflows are reinvested at the discount rate.

A. Internal rate of return

B. Payback period

C. Accounting rate of return

D. Net present value

The depreciation tax shield is

A. a reduction in taxes in the year a new asset is placed in service.

B. the reduction in taxes due to the deductibility of depreciation from taxable revenues.

C. computed as [(one minus the tax rate) times depreciation].

D. the increase in taxes due the addition of depreciation to operating income in computing operating cash flows.

The payback period method of evaluating investment projects is most appropriate

	A.	when rapid recovery of initial investment is a primary concern.
	B.	when no information is available concerning the timing of cash inflows.
	C.	when a project is expected to lose money.
	D.	when it is used as the sole investment criterion.

Answer & Explanation Solved by verified expert

See Answer