Keep iT Moving II

Question 1

WHAT Capital budgeting methods are considered “Screening Methods?”

Answer 1

Net Present Value
Time- Adjusted Rate of Return
Accounting Rate of Return

WHY? - Because these methods screen investments

i.e., the investment must meet a certain standard (rate of return) to be acceptable

Question 2

WHAT is the net present value of an investment?

Answer 2

THIS is the difference between the present value of the inflows expected over the life of the investment and the initial amount of the investment

e.g. Purchase 14,000; Investment 1,000; Rate of Return 12%
= $14,000 / (1+.12) = 12,500
= 12,500 - 1,000= $11,500

Question 3

WHAT costs must be considered in order for a company to meet their payback goals?

i.e. WHAT costs should they factor in terms of Annual Operating Costs?

Answer 3

THEY should factor in the additional net cash inflow required and the tax outflow

i.e. additional net cash inflow required + tax outflow

Question 4

WHAT is the first step in calculating your Net Present Value?

Answer 4

Calculate Your annual net cash inflow

i.e. inflows – cash operating expenses – depreciation × Tax Rate%

Question 5

WHAT is the second step in calculating your Net Present Value?

Answer 5

Calculate the present value of your net inflows

i.e. annual net cash inflow x Annuity Rate

Question 6

WHAT is the third step in calculating your Net Present Value?

Answer 6

THIS is equal to:

Your present value of the net cash inflows
Minus; the Original investment

Question 7

WHAT are some Changes that would decrease the Net Present Value (NPV)?

Answer 7

AN increase in the discount rate, a decrease in cash flows, or an increase in the initial investment lowers the NPV

Question 8

WHAT are some Changes that would increase the Net Present Value (NPV)?

Answer 8

A Decrease in the estimated effective income tax rate

A Decrease in the initial investment

An extension of the project life and associated cash inflows

Question 9

WHAT would be a preferred cash-inflow stream?

Answer 9

A cash-inflow stream that is declining inflows rather than increasing inflows or even inflows

WHY? - Because the concept of present value gives greater value to inflows received earlier than later

Question 10

HOW do you calculate the profitability index of a project?

Answer 10

BY dividing the present value of the annual after-tax cash flows
by the original cash invested in the project

Question 11

WHAT is another name of the Profitability Index?

Answer 11

THE excess present value index

i.e. IT is a variation of the NPV method that facilitates comparison of different-sized investments

Question 12

WHAT is an advantage of the Net Present Value Modeling?

Answer 12

It accounts for compounding rates of return

i.e. ITs primary strength is its incorporation of the time value of money

Question 13

WHAT terms are Net Present Value stated in?

Answer 13

Net Present Value (NPV) is stated in Cash Flows

i.e. NPV is the difference between:

(1) the present value of the estimated net cash inflows provided by the investment and
(2) the present value of the estimated net cash outflows

Question 14

WHAT is a key factor in investment decisions when available funds are limited?

Answer 14

The Profitability Index

Question 15

WHO is responsible for ensuring that adequate backups are taken in a distributed or cooperative system?

Answer 15

USER MANAGEMENT

i.e. The systems are under the control of users, not a central information processing department

Question 16

WHAT is the reasoning behind an enterprise resource planning system?

Answer 16

TO Integrate data from all aspects of an organization’s activities

IT does this by creating one database linked to all of an organization’s applications

Question 17

WHAT is Fuzzy Logic System?

Answer 17

A superset of conventional (Boolean) logic that has been extended to handle the concept of partial truth

i.e. THEY can create rules to address problems with many solutions

Question 18

WHEN can you use the Fuzzy Logic System?

Answer 18

(1) WHEN values are approximate or subjective,
(2) objects belong to multiple sets, membership in a set is a matter of degree, and
(3) data is incomplete or ambiguous

Question 19

WHAT types of systems can be useful for a logical approach by asking a series of questions, using reasoning, and allowing subjective inputs and outputs?

Answer 19

Expert Systems

i.e. It is software designed to perceive, reason, and understand
AND - developed by using a continuous process of revision

Question 20

WHAT is a reason for a company to consider switching to a cloud computing system?

Answer 20

TO lower Upfront costs for equipment and maintenance

i.e. this type of service is usually pay-per-use and self serviced