# Liberty ACCT 212 Chapter 11 Reading Assignment Answers Complete Solutions

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A company is considering an investment opportunity with a cost of $5,000 that will provide future cash flows of $8,000. The cash flows for the investment for the next 4 years are: $1,000, $2,000, $3,000 and $2,000. Assume a required rate of return of 10%. The NPV is $ (rounded to nearest dollar).

Place the following cash flows in the order that they would occur in a capital investment:

Capital budgeting is used to evaluate the purchase of:

The capital investment evaluation method that compares the present value of the net cash flows to the initial amount invested is the:

All of the following are outflows of cash over the life of an asset except:

The process of evaluating and planning for long-term investments is called budgeting.

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## STATUS

A company is considering two investment opportunities. Both cost $5,000 and will provide future cash flows of $8,000. The cash flows for Investment A for the next 4 years are: $1,000, $1,000, $2,000 and $4,000. The cash flows for Investment B for the next 4 years are: $1,000, $2,000, $3,000 and $2,000. Assume a required rate of return of 10%. Using NPV as the evaluation method, the company should choose:

Of the four capital budgeting methods, which two reflect the time value of money?

It is appropriate to use the profitability index to evaluate investment decisions when:

If a company uses straight-line depreciation, the annual average investment can be calculated as:

List the steps involved in capital budgeting decisions, with the first step on top.

An investment that costs $5,000 will produce annual cash flows of $3,000 for 3 years. Using a required return of 8%, the investment will generate a NPV of $ (rounded to nearest dollar).

A company is considering two projects. Project 1 has initial investment of $60,000 and expected cash inflows of $20,000 each year for 5 years. Project 2 has an initial investment of $80,000 and expected cash inflows of $20,000 each year for 10 years. Using the payback period as the evaluation method, which investment should be chosen by management?

Match the capital investment methods to their specific characteristic.

An investment that costs $30,000 will produce annual cash flows of $10,000 for 4 years. Using a required return of 8%, the investment will generate (rounded to the nearest dollar) a:

A company is considering an investment opportunity with a cost of $5,000 that will provide future cash flows of $8,000. The cash flows for the investment for the next 4 years are: $1,000, $1,000, $2,000 and $4,000. Assume a required rate of return of 10%. The NPV is $ (rounded to nearest dollar).

A company is considering two capital investments. Each requires an initial investment of $15,000 and has a 4 year useful life. Investment A has expected cash inflows of $5,000 each year for the 4 years for total cash inflows of $20,000. investment B has the following expected cash flows: Year 1: $8,000; Year 2: $6,000; Year 3: $4,000; Year 4 $2,000; Total cash flows: $20,000. Calculate the payback period for Investment B.

A company is considering two investment projects. Both have an initial cost of $50000. One project has even cash flows and the other uneven cash flows. Which evaluation method would be most appropriate?