1. In order to calculate the net present value (NPV) of a capital investment, we

Question

1. In order to calculate the net present value (NPV) of a capital investment, we must know:
a. the net accounting income generated from the investment
b. the initial outlay and the incremental cash flow
c. the rate of return generated on similar investments
d. none of the above

2. Statisitcs and revenue budget means:
a. the main data elements on which the budget is based
b. cash budget
c. balance sheet budget
d. capital budget

3. If a firm buys a piece of equipment for $10,000, assumes no salvage value and a useful life of 5 years, the annual depreciation expense using the straight-line is:
a. $2,000
b. $2,000
c. $2,400
d. $1,200

4. When a surgical instrument factory increases the number of instruments produced, this will result in:
a. economies of scale
b. economies of scope
c. synergy
d. entergy

Explanation / Answer

1) the initial outlay and the incremental cash flows 2) CAsh budget 3) Straight line depreciation = (Cost of the asset - Salvage value) / Useful life                                           = ($10,000 - $0) / 5                                           = $2,000 4) Economies of scale

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