Post-Synchronous Activity_ Capital Budgeting and Managerial Decisions

Multiple Choice Questions Exercises

Instructions: Answer the following independent questions. Submit answers in a Google form
to be uploaded in Big Sky assignment later.

1. Capital budgeting decisions usually involve analysis of:

A. Cash outflows only.
B. Short-term investments only.
C. Long-term investments only.
D. Investments with certain outcomes only.
E. Operating revenues.

2. The process of analyzing alternative investments and deciding which assets to acquire or
sell is known as:
A. Planning and control.
B. Capital budgeting.
C. Variance analysis.
D. Master budgeting.
E. Managerial accounting.

3. Capital budgeting decisions are generally based on:

A. Tentative predictions of future outcomes.
B. Perfect predictions of future outcomes.
C. Results from past outcomes only.
D. Results from current outcomes only.
E. Speculation of interest rates and economic performance only.

4. The net cash flow of a particular investment project:

A. Does not take income taxes into consideration.
B. Equals the total of the inflows of the project.
C. Equals the total of the outflows of the project.
D. Does not include depreciation.
E. Is equal to operating income each period.

5. Capital budgeting decisions are risky because:

A. The outcome is uncertain.
B. Large amounts of money are usually involved.
C. The investment involves a long-term commitment.
D. The decision could be difficult or impossible to reverse.
E. All of these are true

6. The process of restating future cash flows in today's pesos is known as:
A. Budgeting.
B. Annualization.
C. Discounting.
D. Payback period.
E. Capitalizing.

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7. A minimum acceptable rate of return for an investment decision is called the:

A. Internal rate of return.
B. Average rate of return.
C. Hurdle rate of return.
D. Maximum rate of return.
E. Payback rate of return.

8. In business decision-making, managers typically examine the two fundamental factors of:
A. Risk and capital investment.
B. Risk and rate of return.
C. Capital investment and rate of return.
D. Risk and payback.
E. Payback and rate of return.

9. A major limitation of the internal rate of return method is:

A. Failure to measure time value of money.
B. Failure to measure results as a percent.
C. Failure to consider the payback period.
D. Failure to reflect varying risk levels over project life.
E. Failure to compare dissimilar projects.

10. An opportunity cost:

A. Is an unavoidable cost.
B. Requires a current outlay of cash.
C. Results from past managerial decisions.
D. Is the lost benefit of choosing an alternative course of action.
E. Is irrelevant in decision making.

11. The potential benefits of one alternative that are lost by choosing another is known as
a(n):
A. Alternative cost.
B. Sunk cost.
C. Out-of-pocket cost.
D. Differential cost.
E. Opportunity cost.

12. A cost that requires a current and/or future outlay of cash, and is usually an incremental
cost, is a(n):
A. Out-of-pocket cost.
B. Sunk cost.
C. Opportunity cost.
D. Operating cost.
E. Uncontrollable cost.

13. A cost that cannot be avoided or changed because it arises from a past decision, and is
irrelevant to future decisions, is called a(n):
A. Uncontrollable cost.
B. Incremental cost.
C. Opportunity cost.
D. Out-of-pocket cost.
E. Sunk cost.

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14. A company paid P200,000 ten years ago for a specialized machine that has no salvage
value and is being depreciated at the rate of P10,000 per year. The company is considering
using the machine in a new project that will have incremental revenues of P28,000 per year
and annual cash expenses of P20,000. In analyzing the new project, the P10,000 depreciation
on the machine is an example of a(n):
A. Incremental cost.
B. Opportunity cost.
C. Variable cost.
D. Sunk cost.
E. Out-of-pocket cost.

15. An additional cost incurred only if a particular action is taken is a(n):

A. Period cost.
B. Pocket cost.
C. Discount cost.
D. Incremental cost.
E. Sunk cost.

16. A company is considering a new project that will cost P19,000. This project would result
in additional annual revenues of P6,000 for the next 5 years. The P19,000 cost is an example
of a(n):
A. Sunk cost.
B. Fixed cost.
C. Incremental cost.
D. Uncontrollable cost.
E. Opportunity cost.

17. Patrick Corporation inadvertently produced 10,000 defective personal radios. The radios
cost P8 each to produce. A salvage company will purchase the defective units as they are for
P3 each. Patrick's production manager reports that the defects can be corrected for P5 per unit,
enabling them to be sold at their regular market price of P12.50. Patrick should:
A. Sell the radios for P3 per unit.
B. Correct the defects and sell the radios at the regular price.
C. Sell the radios as they are because repairing them will cause their total cost to exceed their
selling price.
D. Sell 5,000 radios to the salvage company and repair the remainder.

18. Product A requires 5 machine hours per unit to be produced, Product B requires only 3
machine hours per unit, and the company's productive capacity is limited to 240,000 machine
hours. Product A sells for P16 per unit and has variable costs of P6 per unit. Product B sells
for P12 per unit and has variable costs of P5 per unit. Assuming the company can sell as many
units of either product as it produces, the company should:
A. Produce only Product A.
B. Produce only Product B.
C. Produce equal amounts of A and B.
D. Produce A and B in the ratio of 62.5% A to 37.5% B.
E. Produce A and B in the ratio of 40% A and 60% B.

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19. Alpha Co. can produce a unit of Beta for the following costs:

An outside supplier offers to provide Alpha with all the Beta units it needs at P60 per unit. If
Alpha buys from the supplier, Alpha will still incur 40% of its overhead. Alpha should:
A. Buy Beta since the relevant cost to make it is P72.
B. Make Beta since the relevant cost to make it is P56.
C. Buy Beta since the relevant cost to make it is P48.
D. Make Beta since the relevant cost to make it is P48.
E. Buy Beta since the relevant cost to make it is P56.
20. If Special Export is processed further into Prime Cat Food and Feline Surprise, the total
gross profit would be:
A. P 68,000.
B. P 78,000.
C. P 96,000.
D. P 98,000.
E. P100,000.

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ANSWER SHEET
SHORT TERM DECISIONS

NAME: ________________________________________ SCORE: _______________

COURSE, YEAR & SECTION: ________________________________________________

1 6 11. 16.
2 7 12. 17.
3 8 13. 18.
4 9 14. 19.
5 10 15. 20.

TAKE NOTE: FINAL SUMMARY ANSWER TO BE SUBMITTED Via Google form.

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