1)   Which of the following is an advantage of decentralization?

      A) Managers' motivation and retention can be increased by empowering segment managers to make decisions.

      B) Certain costs of activities may be duplicated.

       C) Customer response time is generally decreased.

       D) Top management can concentrate on decisions that relate to day-to-day operations of         segments.

 

2)   Which of the following is not an advantage of decentralization?

       A) provides training

       B) frees top management time

       C) works to achieve goal congruence

        D) supports the use of expert knowledge

 

3)   Which of the following is a disadvantage of decentralization?

       A) It results in increased customer response time.

       B) It allows only the top management to make decisions.

       C) It does not motivate employees because the decision-making powers are not delegated.

        D) It results in problems with achieving goal congruence.

 

4)   The term goal congruence refers to the ________.

         A) matching of financial goals of the company with its nonfinancial goals

        B) aligning the goals of business segment managers with the goals of top management

        C) achievement of the goals set by the management by utilizing the resources available

         D) duplication of costs as a result of decentralization

 

5)   The manager of a revenue center is responsible for generating profits.

                a.) TRUE                                               b.) FALSE

 

6)   A responsibility accounting system evaluates the performance of each responsibility center and its manager.

                a.) TRUE                                               b.) FALSE

 

7)   The manager of a cost center is responsible for controlling costs and generating revenues for the company.

                  a.)  TRUE                                            b.)  FALSE

 

8)   The manager of a profit center is responsible for generating revenues and managing the center's invested capital.

                a.)  TRUE                                              b.)  FALSE

 

9)   An investment center manager is responsible for generating profits and managing invested capital.

                  a.) TRUE                                             b.)  FALSE

 

10)   The production line of a manufacturing company is most likely to be considered as a(n) ________.

   A) cost center

   B) profit center

   C) revenue center

   D) investment center

 

11)   Profit center responsibility reports include _______________________.

     A) revenues only

      B) invested capital

       C) both revenues and expenses

       D) returns on investments

 

12)   Long-term investments are made by the investment center manager for the purpose of ____________.

A) increasing profits

B) decreasing profits

C) increasing interest expense

D) decreasing plant assets

 

13)   Which of the following managers is likely to have the most diverse responsibilities?

A) the manager of a cost center

B) the manager of a profit center

C) the manager of an investment center

D) the manager of a revenue center

 

14)   Which of the following best describes the manager of a profit center?

A) The manager is only responsible for controlling costs.

B) The manager is responsible for generating profits and efficiently managing the center's invested capital.

C) The manager is only responsible for generating revenues.

D) The manager is responsible for generating revenues and controlling costs.

 

15)   List the four types of responsibility centers.  For each center, state the responsibility of the manager.

 

Type of responsibility center	  Responsibility of the manager
Â	Â
Â	Â
Â	Â
Â	Â

 

16)   Percentage of market share and rate of on-time deliveries are indicators of the ________ perspective.

A) quality management

B) internal business

C) customer

D) learning and growth

 

17)   How is the use of a balanced scorecard as a performance evaluation system helpful to companies?

 

18)   State the strategy for each of the perspectives of the balanced scorecard.

 

Balanced scorecard perspective	Strategy
Financial     Â	Â
Customer     Â	Â
Internal business     Â	Â
Learning and growth   Â	Â

 

19)   An investment center manager is responsible for generating profits and managing invested capital.

                a.)  TRUE                                                              b.)  FALSE

 

20)   The production line of a manufacturing company is most likely to be considered as a(n) ________.

A) cost center

B) profit center

C) revenue center

D) investment center

 

21)   The accounting rate of return shows the effect of the investment on the company's accrual-based income.

                a.)  TRUE                                                              b.)  FALSE

 

22)   The payback and accounting rate of return (ARR) methods are suitable for investments with a relatively short time span.

                a.) TRUE                                                               b.)  FALSE

 

23)   The payback and accounting rate of return methods are often used to perform an initial screening of investments.

                a.)  TRUE                                                              b.)  FALSE

 

24)   The payback method provides management with valuable information about the time period in   which the cash invested will be recouped.

                a.)  TRUE                                                              b.)  FALSE

 

25)   The net present value and internal rate of return methods are appropriate for longer-term investments because they ignore the time value of money.

                a.)  TRUE                                                              b.)  FALSE

 

26)   Which of the following best describes a capital budgeting post-audit?

A) an audit of an operating unit of a company

B) an audit performed only at the end of the project's life span

C) an analysis of an investment's cash flows prior to committing to the initial investment

D) a comparison of actual results of capital investments with projected results

 

27)   List three cash inflows and three cash outflows for capital investments.

 

Cash inflows	Cash outflows
Â	Â
Â	Â
Â	Â

 

 

28)   List the steps of the capital budgeting process and identify actions that relate to each step.

 

 

 

 

29)   Logan, Inc. is evaluating two possible investments in depreciable plant assets. The company uses the straight-line method of depreciation. The following information is available:

 

Â	Investment A	Investment B
Initial capital investment	      $101,000	       $151,000
Estimated useful life	10 years	10 years
Estimated residual value	0	$20,000
Estimated annual net cash inflow for 10 years	$28,000	$47,000
Required rate of return	12%	12%

 

Calculate the payback period for Investment A. (Round your answer to two decimal places.)

A) 2.22 years

B) 2.89 years

C) 1.00 year

D) 3.61 years

 

30)   Joanne, Inc. is evaluating two possible investments in depreciable plant assets. The company uses the straight-line method of depreciation. The following information is available:

 

Â	Investment A	Investment B
Initial capital investment	     $107,000	$159,000
Estimated useful life	10 years	10 years
Estimated residual value	0	$26,000
Estimated annual net cash inflow for 10 years	$28,000	$46,000
Required rate of return	10%	14%

 

Calculate the payback period for Investment B. (Round your answer to two decimal places.)

A) 3.46 years

B) 1.94 years

C) 2.89 years

D) 3.82 years

 

31) If net cash inflows are unequal, how is the payback period (in years) of an investment is calculated?

 

 

 

 

 

 

 

 

 

 

32)   Under what circumstances is the investment with the shortest payback the best choice?  How should managers use the payback method?

 

 

 

 

33)   Gordon Manufacturing is considering following two investment proposals:

Â	Proposal X	Proposal Y
Investment	$740,000	$508,000
Useful life	5 years	4 years
Estimated annual net cash inflows received    at the end of each year	$154,000	$92,000
Residual value	$66,000	     $0
Depreciation method	Straight-line	Straight-line
Annual discount rate	10%	9%

Compute the present value of the future cash inflows from Proposal X.

A) $762,136

B) $668,128

C) $583,814

D) $624,800

 

34)   The following details are provided by Volvox Foundry Company:

 

Initial investment	$5,000,000
Discount rate	15%
Yearly cash flows	Â
1	$1,256,000
2	$1,360,000
3	$2,402,000
4	$1,158,000

 

What is the NPV of the project?

A) $(636,228)

B) $590,000

C) $618,409

D) $(594,486)

 

 

35)   Zane Set Designs Company has received an award which entitles it to receive annual payments of $10,000 at the end of each year for the next ten years. Which of the following is used to calculate today's value of this award?

A) Present Value of $1

B) Present Value of an Ordinary Annuity of $1

C) Future Value of $1

D) Future Value of an Ordinary Annuity of $1

 

36)   You have just won the lottery and have three payout options:

 

1.    $1,000,000 now

2.    $150,000 at the end of each year for the next ten years

3.    $2,000,000 at the end of ten years.

 

What is a common basis for comparison that you can use to decide which option to choose?  Explain your answer.

 

37)   Which of the following situations suggests the acceptance of an investment proposal?

A) The present value of the net cash inflows exceeds the initial investment.

B) The IRR is lower than the hurdle rate.

C) The cash inflows are less than the initial investment.

D) The investment will have a residual value.

 

38)   Discounted cash flow methods, such as net present value and internal rate of return, ________.

A) use simple interest calculations

B) use net income amounts rather than cash flows

C) focus on the payback period

D) consider discounted cash flows

 

39)   List two strengths and one weakness of the accounting rate of return capital budgeting method.

 

 

 

 

 

40)   What are the strengths of the net present value capital budgeting method?