GB 519 Unit 4 Quiz
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UNIT 4 QUIZ
1. Question : The shadow price in a linear programming model is:
Interesting from a mathematical standpoint, but not useful
from an accounting standpoint.
Equal to the current market price for an additional unit of the
The price one would be willing to pay for an additional unit of
the scarce resource.
Greater than the market price for the related resource.
Zero for a binding constraint.
Question 2. Question : Determination of the optimum short-term product mix needs to
include an analysis of:
Fully absorbed costs.
Joint manufacturing costs.
Question 3. Question : All the following are characteristic of relevant costs except:
They are generally variable.
They are not committed.
They are different in amount for different options.
They are costs that will be incurred in the future.
They are inventory-related costs.
UNIT 4 QUIZ
Question 4. Question : Which of the following statements regarding "opportunity costs"
These costs are recorded routinely by cost accounting
These costs relate to the benefit lost or foregone when a
chosen option (course of action) precludes the benefits from an
These costs are generally deductible for federal income tax
In terms of most short-run decisions, they are irrelevant.
Question 5. Question : A useful device for solving production problems involving
multiple products and limited resources is:
Gross profit per unit of product.
Contribution per unit of scarce resource.
Relevant cost pricing.
The contribution income statement.
Question 6. Question : Relevant costs for a make-or-buy decision for a component part
include all of the following EXCEPT:
Fixed salaries that will not be incurred if the part is
Payroll tax (unemployment insurance cost), because of
Material-handling costs that can be eliminated if the part is
Special machinery for the part that has no resale value.
Current direct material costs for the part.
UNIT 4 QUIZ
Question 7. Question : Which one of the following is an advantage of the book
(accounting) rate of return method for analyzing capital
It is not affected by different accounting methods.
It is precise and objective.
Data for calculating the return are typically readily available.
The method explicitly adjusts for the time value of money.
The accounting rate of return is generally approximately equal
to a project's internal rate of return (IRR).
Question 8. Question : Which one of the following statements concerning capital
budgeting is not true?
A basic objective underlying capital budgeting is to select
assets that will earn a satisfactory return.
Capital budgeting is the process of identifying, evaluating,
selecting, and controlling long-term investment projects.
Capital budgeting is based on precise estimates of future
Capital budgeting involves estimating the revenues and costs
of each proposed project, evaluating their merits, and choosing
those worthy of investment.
UNIT 4 QUIZ
Question 9. Question : The after-tax cost of debt for purposes of estimating a company's
weighted-average cost of capital:
Requires an estimate of the yield-to-maturity for long-term
Is equal to the pretax cost of debt times t, where t = income
Is equal to the pretax cost of debt ÷ (1 - t), where t = income
Is approximated by the firm's short-term borrowing rate.
Is estimated using the Capital Asset Pricing Model (CAPM).
Question 10. Question : Which one of the following is an advantage of the payback
It provides a (rough) measure of risk.
It is linearly related to the net present value (NPV) of a
It considers all possible future cash flows.
It applies conventional discounting procedures to anticipated
future cash flows.
It allows managers to choose between competing projects with
different useful lives.
UNIT 4 QUIZ
Question 11. Question : When evaluating capital budgeting decision models, the payback
Cost of capital.
Average net income divided by average investment.
Average after-tax cash inflow divided by average investment.
Question 12. Question : In a discounted cash flow (DCF) analysis, a required incremental
investment in net working capital:
Should be amortized over the useful life of the equipment.
Can be disregarded because the same amount of cash will be
recovered at the end of the project's life.
Should be treated as a recurring cash outflow over the life of
Should be treated as a reduction in the required cash outflow
in period 0.
Should be treated as an immediate cash outflow that is later
recovered when it is no longer needed.
UNIT 4 QUIZ
Question 13. Question : Pique Corporation wants to purchase a new machine for $300,000.
Management predicts that the machine can produce sales of
$200,000 each year for the next 5 years. Expenses are expected to
include direct materials, direct labor, and factory overhead
(excluding depreciation) totaling $80,000 per year. The firm uses
straight-line depreciation with no residual value for all depreciable
assets. Pique's combined income tax rate is 40%. Management
requires a minimum after-tax rate of return of 10% on all
What is the present value payback period, rounded to one-tenth of
a year? (Note: PV factors for 10% are as follows: year 1 = 0.909;
year 2 = 0.826; year 3 = 0.751; year 4 = 0.683; year 5 = 0.621; the
PV annuity factor for 10%, 5 years = 3.791.)
Question 14. Question : A truck, costing $25,000 and uninsured, was wrecked the very
first day it was used. It can either be disposed of for $5,000 cash
and be replaced with a similar truck costing $27,000, or rebuilt for
$20,000 and be brand new as far as operating characteristics and
looks are concerned. The net relevant cost of the replacing option
UNIT 4 QUIZ
Question 15. Question : Carmino Company is considering an investment in equipment that
will generate an after-tax income of $6,000 for each year of its
four-year life. The asset has no salvage value. The firm is in the
40% tax bracket. The net book value (NBV) of the investment at
the beginning of each year will be as follows:
Year 1 = $30,000
Year 2 = 15,000
Year 3 = 7,500
Year 4 = 3,750
The amount of after-tax cash inflow from the asset in Year 3 is:
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