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Accounting MCQs Assignment Question

  1. 1. If Drexel earns 7% a year on its endowment, how much must we contribute to establish a perpetual scholarship of $20,000 per year?

1.

$158,000

2.

$1,400

3.

None of these answers

4.

$286,000

5.

$592,000

12 points  

Question 2

  1. 2. Part A - You are considering an upgrade at a chip manufacturing plant. A new VLSI testing station costs $100,000, installed. It will save $50,000 per year in labor costs. Use five-year tax life and a tax rate of 40%. Find the rate of return (IRR). (Use two sig. figs.) The answer to Part A is:

1.

23%

2.

20%

3.

29%

4.

26%

5.

None of these answers

6 points  

Question 3

  1. 2. (Part A repeated- You are considering an upgrade at a chip manufacturing plant. A new VLSI testing station costs $100,000, installed. It will save $50,000 per year in labor costs. Use five-year tax life and a tax rate of 40%. Find the rate of return (IRR). (Use two sig. figs.)) Part B- If the unit requires reprogramming calibration during the fourth year at a cost of $30,000, what is the new IRR with this condition? The answer to Part B is:

1.

22%

2.

27%

3.

None of these answers

4.

18%

5.

20%

6 points  

Question 4

  1. 3. An inventor offers to sell you patent rights to a device for $100,000. You have data to suggest a 35% chance of market success yielding net cash flows of $200,000 per year for 5 years. If not a success, no revenues are expected. With MARR equal to 20%, construct a decision tree and analyze by expected present worth. If your would buy these patent rights, select true. If you would not buy these patent rights, select false.

True

False

12 points  

Question 5

  1. 4. You purchase a farm for $1,000,000 in cash. A local farmer rents the land to grow wheat and this pays your real estate taxes and insurance. After five years you can sell for $2,000,000. If inflation is 3% per year, what is your real rate of return on the investment?

1.

15.7%

2.

14.9%

3.

11.6%

4.

9.6%

5.

None of these answers

12 points  

Question 6

  1. 5. A Chemical Plant Expansion cost $45 Million. Reactor yields were difficult to estimate so the design engineers were conservative; the reactor could not be easily enlarged later. When the plant was operating, which situation was most likely? a) There were few bottleneck removal projects, b) A number of bottleneck removal opportunities were identified with rates of return higher than the original project, and c) A number of bottleneck removal opportunities were identified with rates of return lower than the original project. (this question was discussed in the audio lectures)

1.

a

2.

c

3.

b

12 points  

Question 7

  1. 6. Three mutually exclusive alternatives requiring different investment levels are being considered. The life of all three is 20 years with no salvage value. The MARR is 15%. Find the alternative that should be selected using IRR or Present Worth on the incremental investment. (One or the other, your choice.)

                                        Al                     A2                               A3

Investment                $ 60,000              $ 30,000                      $ 100,000

Cash flow per year $ 10,692                $ 6,162                       $ 17,000

Return on total inv.        17.1%              20.0%                          16.1%

1.

A1

2.

A3

3.

A2

12 points  

Question 8

  1. 7. As the manager of exploration for Chieftain Oil & Gas, you are evaluating a new offshore oil recovery module that will recover oil and gas deep in the Gulf of Mexico. The expected cash flows are: Initial investment $150 Million Net cash flows years 1 to 5, $20M (Million), $60M, $90M, $60M, $30M, then well depleted, no salvage value, Compute: Payback period, Present worth (The MARR is 15%), IRR, NPVI for this project. (Please compute the scenario and then answer the four parts of the question) Part A - What is the Payback Period?

1.

1.8

2.

3.8

3.

2.8

4.

None of these answers

5.

5.8

7 points  

Question 9

  1. 7. As the manager of exploration for Chieftain Oil & Gas, you are evaluating a new offshore oil recovery module that will recover oil and gas deep in the Gulf of Mexico. The expected cash flows are: Initial investment $150 Million Net cash flows years 1 to 5, $20M (Million), $60M, $90M, $60M, $30M, then well depleted, no salvage value, Compute: Payback period, Present worth (The MARR is 15%), IRR, NPVI for this project. Part B - What is the PW15?

1.

21M$

2.

5M$

3.

1M$

4.

42M$

5.

None of these answers

7 points  

Question 10

  1. 7. As the manager of exploration for Chieftain Oil & Gas, you are evaluating a new offshore oil recovery module that will recover oil and gas deep in the Gulf of Mexico. The expected cash flows are: Initial investment $150 Million Net cash flows years 1 to 5, $20M (Million), $60M, $90M, $60M, $30M, then well depleted, no salvage value, Compute: Payback period, Present worth (The MARR is 15%), IRR, NPVI for this project. Part C - What is the IRR?

1.

18%

2.

30%

3.

20%

4.

None of these answers

5.

7%

7 points  

Question 11

  1. 7. As the manager of exploration for Chieftain Oil & Gas, you are evaluating a new offshore oil recovery module that will recover oil and gas deep in the Gulf of Mexico. The expected cash flows are: Initial investment $150 Million Net cash flows years 1 to 5, $20M (Million), $60M, $90M, $60M, $30M, then well depleted, no salvage value, Compute: Payback period, Present worth (The MARR is 15%), IRR, NPVI for this project. Part D - What is the NPVI?

1.

0.25

2.

0.14

3.

0.07

4.

0.17

5.

None of these answers

7 points  

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