Which of the following expresses the relationship between risk and return?
a. Inverse relationship
b. Direct relationship
c. Negative relationship
d. No relationship
Answer: b.
Learn More :
CPA Module 43
- Which of the following capital budgeting techniques would allow management to justify investing in a project that could not be justified currently by using techniques that focus on expected cash flows?
- Andrew Corporation is evaluating a capital investment that would result in $30,000 higher contribution margin benefit with increased annual personnel costs of $20,000. In calculating the net present value of benefits and costs, income taxes would:
- As used in capital budgeting analysis, the internal rate of return uses which of the following items in its computation?
- A project's net present value, ignoring income tax considerations, is normally affected by the
- If an investment project has a profitability index of 1.15, then the
- The capital budgeting technique known as accounting rate of return uses
- When a firm finances each asset with a financial instrument of the same approximate maturity as the life of the asset, it is applying
- Which of the following risks relates to the possibility that a derivative might NOT be effective at hedging a particular asset?
- Which of the following techniques is used to value stock options?
- According to the expectations theory of the term structure of interest rates, if inflation is expected to increase, the yield curve is
- According to the expectations theory, if the yield curve on the New York money market is upward sloping while that on the Tokyo money market is downward sloping, then inflation in
- The yield curve shown below implies that the
- The expected return of a portfolio is measured by the
- Probability (risk) analysis is
- To assist in an investment decision, Gift Co. selected the most likely sales volume from several possible outcomes. Which of the following attributes would that selected sales volume reflect?
- The level of risk that concerns investors who supply capital to a diversified company is
- Buff Co. is considering replacing an old machine with a new machine. Which of the following item is economically relevant to Buff's decision? (Ignore income tax consideration)
- How are the following used in the calculation of the internal rate of return of a proposed project? Ignore income tax considerations.
- Tam Co. is negotiating for the purchase of equipment that would cost $100,000, with the expectation that $20,000 per year could be saved in after-tax cash costs if the equipment were acquired. The equipment's estimated useful life is ten years, with no residual value, and would be depreciated by the straight-line method. Tam's predetermined minimum desired rate of return is 12%. Present value of an annuity of 1 at 12% for ten periods is 5.65. Present value of 1 due in ten periods at 12% is .322. In estimating the internal rate of return, the factors in the table of present values of an annuity should be taken from the columns closest to
- An organization is using capital budgeting techniques to compare two independent projects. It could accept one, both, or neither of the projects. Which of the following statements is true about the use of NPV and IRR methods for evaluating these two projects?
- For the next two years, a lease is estimated to have an operating net cash inflow of $7,500 per annum, before adjusting for $5,000 per annum tax basis lease amortization, and a 40% tax rate. The present value of an ordinary annuity of $1 per year at 10% for two years is 1.74. What is the lease's after-tax present value using a 10% discount factor?
- Lin Co. is buying machinery it expects will increase average annual operating income by $40,000. The initial increase in the required investment is $60,000, and the average increase in required investment is $30,000. To compute the accrual accounting rate of return, what amount should be used as the numerator in the ratio?
- Tam Co. is negotiating for the purchase of equipment that would cost $100,000, with the expectation that $20,000 per year could be saved in after-tax cash costs if the equipment were acquired. The equipment's estimated useful life is ten years, with no residual value, and it would be depreciated by the straight-line method. Tam's predetermined minimum desired rate of return is 12%. The present value of an annuity of 1 at 12% for ten periods is 5.65. The present value of 1 due in ten periods at 12% is .322. Accrual accounting rate of return based on the initial investment is
- Which of the following is an advantage of the accounting rate of return method of evaluating investment returns?
- How is the discounted payback method an improvement over the payback method in evaluating investment projects?