Exam 2 Flashcards
The payback period method is generally appropriate as a primary decision rule.
False
The higher the interest rate and the farther into the future a cash flow occurs, the lower its PW is
True
Equivalent Uniform Annual Cost (EUAC) reflects the annual equivalent invested capital cost of the asset
False
The difference between a project’s IRR and the required return (i.e., MARR) is viewed by management as a measure of investment safety. A large difference signals a wider margin of safety (or less relative risk).
True
The base alternative is the one that requires the least investment of capital.
True
To select the best alternative, we can select the alternative with the largest internal rate of return.
False
To be attractive, a capital project must provide a return that exceeds a minimum level established by the top management of an organization. This return is called hurdle rate.
False
When comparing MEAs with unequal lives, using the coterminated assumption means that we assume that the economic consequences expected during the MEAs’ life spans will recur in succeeding life spans
False
To use the coterminated assumption, the study period is either indefinitely long or equal to a common multiple of the MEAs useful lives
False
Under the coterminated assumption, when the Useful Life > Study Period, we truncate the alternative at the end of the study period, using an estimated market value
True
With repeatability, we can compute the AW of each alternative over its own useful life and recommend the one having the most economical value
True
Under the coterminated assumption, when the Useful Life > Study Period for cost alternatives, we can
Contract or lease the needed job for the remaining years of the study period.
A company can begin to depreciate a property it owns when the property is delivered to the company.
False
Inventory, stock in trade, and investment property are all depreciable
False
Intangible properties include
Franchises, patents, and copyrights
Property is depreciable if it meets certain requirements such as
- It must be used in business or held to produce income
- It must have a determinable useful life, and the life must be longer than one year
- It must be something that wears out, decays, gets used up, becomes obsolete, or loses value from natural causes
Useful life is the number of years over which the basis of a property is recovered through the accounting process.
False
The depreciation method that assumes constant amount of depreciation each year over the depreciable life of the asset is
Straight-Line (SL) Method
Declining-Balance (DB) method never reaches a BV of zero or other specific value such as SVN
True
In the DB with switchover to SL method, switchover occurs in the year in which an equal or a larger depreciation amount is obtained from the DB method
False
The ADS method uses the Declining-Balance (DB) Method to depreciation deductions
False
The ADS recovery period for nonresidential real property is
40 years
Under the MACRS GDS method, any depreciable personal property that does not “fit” into one of the defined asset classes is depreciated as being in the
None of the following: Twenty-year property class, Three-year property class, Five-year property class
Property that is placed in any tax-exempt use and property used predominantly outside the United States are examples of assets that must be depreciated under the General Depreciation System (GDS)
False
