Finance For Non-financial Managers 7th Edition By Bergeron – Test Bank

Chapter 11 Capital Budgeting
MULTIPLE CHOICE
1. Which of the following is a feature of a capital investment?
a. It is minimal.
b. It is an inflow of funds.
c. It is durable.
d. It is expensed.
ANS: C PTS: 1 REF: 465 OBJ: LO 1
BLM: Remember
2. Which of the following is a feature of an expense investment?
a. It is durable.
b. It is spread over many years.
c. It is significant.
d. It is impermanent.
ANS: D PTS: 1 REF: 465 OBJ: LO 1
BLM: Remember
3. Which of the following is a typical opportunity investment?
a. maintaining a plant
b. launching a new product
c. building a cafeteria
d. building a warehouse
ANS: B PTS: 1 REF: 467 OBJ: LO 2
BLM: Remember
4. Which of the following is NOT a compulsory investment?
a. constructing a new plant
b. removing pollution from the production facilities
c. spending money on safety equipment
d. increasing production capacity to meet marketing needs
ANS: A PTS: 1 REF: 467 OBJ: LO 2
BLM: Remember
5. What type of investment is an expenditure of $ 5,000 on an advertising program?
a. a capital investment
b. an opportunity investment
c. a compulsory investment
d. an expense investment
ANS: D PTS: 1 REF: 465 OBJ: LO 1
BLM: Remember
Chapter 11 Capital Budgeting
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6. Why would a company choose to make an opportunity investment?
a. for cosmetic reasons
b. to improve operating efficiencies
c. for strategic reasons
d. for legislative reasons
ANS: C PTS: 1 REF: 467 OBJ: LO 2
BLM: Remember
7. What is the ultimate reason for injecting funds into capital projects?
a. to maintain the level of expenses
b. to improve the return on investment
c. to reduce the amount of income taxes
d. to increase the level of CCA
ANS: B PTS: 1 REF: 467 OBJ: LO 2
BLM: Remember
8. Which of the following is NOT a key step in the capital budgeting process?
a. the environmental analysis
b. adding the sunk costs to cash outflows
c. goal setting
d. determining the weighted average cost of capital
ANS: B PTS: 1 REF: 469 OBJ: LO 3
BLM: Remember
9. Which of the following is an example of a cash outflow in capital budgeting?
a. advertising
b. travel
c. equipment
d. salaries
ANS: C PTS: 1 REF: 470 OBJ: LO 4
BLM: Remember
10. Which of the following is an example of a significant cash outflow involved in capital
projects?
a. supplies
b. capital cost allowance
c. office accessories
d. working capital
ANS: D PTS: 1 REF: 470 OBJ: LO 4
BLM: Remember