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# Break-Even Point, Internal Rate of Return, Net Present Value and Capital Budgeting

Please see the attached file for the fully formatted problems.

42. A company paid off a \$10,000 long-term note by issuing common stock to the creditor. This transaction would be reflected on the company's statement of cash flows as:
a. an addition of \$10,000 and a deduction of \$10,000 under investing activities.
b. an addition of \$10,000 and a deduction of \$10,000 under financing activities.
c. a direct exchange transaction in a separate schedule accompanying the statement of cash flows.
d. an addition of \$10,000 under financing activities.
43. If Q equals the level of output, P is the selling price per unit, V is the variable expense per unit, and F is the fixed expense, then the break-even point in units is:
a. Q/ (P-V).
b. F/(P-V).
c. V/ (P-V).
d. F/ [Q (P-V)].
44. If the internal rate of return is used as the discount rate in computing net present value, the net present value will be:
a. positive.
b. negative.
C. zero.
d. unknown.
45. A decrease in the discount rate:
a. will increase present values of future cash flows.
b. is one way to compensate for greater risk in a project.
c. will reduce present values of future cash flows.
d. responses a and b are both correct.
46. Beaver Company is investigating the purchase of a new threading machine that costs \$18,000. The machine would save about \$4,000 per year over the present method of threading component parts, and would have a salvage value of about \$3,000 in 6 years when the machine would be replaced. The company's required rate of return is 12%. The machine's net present value is:
a. \$1,556.
b. (\$35).
C. \$11,000.
d. \$8,000.

47. If the labor efficiency variance is unfavorable, then:
a. actual hours exceeded standard hours allowed for the actual output.
b. standard hours allowed for the actual output exceeded actual hours.
c. the standard rate exceeded the actual rate.
d. the actual rate exceeded the standard rate.
48. The capital budgeting method that recognizes the time value of money by discounting cash flows over the life of the project, using the company's required rate of return as the discount rate is called the:
a. simple rate of return method.
b. the net present value method.
e. the internal rate of return method.
d. the payback method.
49. The following information pertains to Mete Co.:
Sales \$400,000
Variable expenses 80,000
Fixed expenses 20,000
Mete's break-even point in sales dollars is:
a. \$ 20,000.
b. \$25,000.
c. \$ 80,000.
d. \$100,000.
50. Last month a manufacturing company had the following operating results:
Beginning finished goods inventory \$86,000
Ending finished goods inventory \$60,000
Sales \$500,000
Gross margin \$72,000
What was the cost of goods manufactured for the month?
a. \$428,000
b. \$402,000
c. \$454,000
d. \$474,000

keywords: IRR, NPV

Introduction to Managerial Accounting 2nd Edition by Brewer Garrison and Noreen. See attached file for full problem description.

#### Solution Summary

Break-Even Point, Internal Rate of Return, Net Present Value and Capital Budgeting are investigated. Most answers are explained.

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