Ivy Software - Managerial Accounting
Comprehensive Resource To Help You Ace
2026-2027 Includes Frequently Tested
Questions With ELABORATED 100% Correct
COMPLETE SOLUTIONS
Guaranteed Pass First Attempt!!
Current Update!!
1. Define Benefit - ANSWER A source of cash. Operating cost savings,
additional revenues, tax savings, cash proceeds from a sale of assets
replaced and the predicted salvage value of the new asset at the end of its
useful life.
2. List six Benefits - ANSWER
a) Cash proceeds from sale of old asset
b) Cost savings over old asset
c) New depreciation charges, a non-cash expense
d) Tax benefits such as investment tax credit (ITC); capital losses on sale of old
asset
e) Additional revenue possible because of investment
f) Salvage value of new asset
,3. List six Costs - ANSWER 1. Acquisition costs, not necessarily price
2. Annual operating cost and routine maintenance
3. Depreciation lost from sale of old asset
4. Tax consequences of capital gain on sale of old asset; increased taxes
resulting from improved profitability
5. Revenue lost from sale of old asset
6. Major overhauls
4. Incremental Cash Flows - ANSWER the additional cash flows—outflows
or inflows—expected to result from a proposed capital expenditure.
5. True/False: Cash flows are earnings and will affect the firm's income
statement - ANSWER False
6. Sunk Cost - ANSWER A cost that has already been incurred and that
cannot be changed by any decision made now or in the future, even if the
investment is not undertaken.
7. Investment Tax Credit (ITC) - ANSWER a credit that allows firms to
deduct a percentage of their annual qualified investment expenditures from
the taxes they owe; In capital budgeting it would be considered a reduction
in the initial outlay.
8. Differential Analysis - ANSWER a technique used to identify incremental
costs and benefits. When performing differential analysis, it is very
important to choose and retain a reference point for comparisons, such as
, the company as it is before any investments are undertaken. When
considering investment alternatives, equal time horizons must be used.
9. Items included in a Differential Analysis - ANSWER Taxes
- Capital Gain on sale of old asset
- Depreciation
- ITC
Depreciation lost
Residual Value
10.Useful Life - ANSWER estimated economic life of an asset, which is the
number of years that the asset is expected to be productive.
11.Time Horizon - ANSWER period of time that the analyst can be
confident in the predicted figures. When considering investment
alternatives, equal time horizons must be used.
12.depreciable life - ANSWER the number of years that the company will
depreciate the new asset, and is a function of the depreciation method that
is chosen. It is an arbitrary period dictated by the tax code.
13.Residual cash flows are estimated:
a. when the useful lives of alternatives differ
b. when future depreciation of an old asset is lost
c. in order to quantify the cash flows of an investment beyond
the chosen time horizon
d. A & C
, e. A, B & C - ANSWER A&C
14.Residual Cash Flow - ANSWER The present value of the future cash flow
for the new asset, as of the last year of the chosen time horizon. Estimated
when the useful lives of alternatives are different & one asset has a shorter
economic life than its alternatives.
15.Residual value - ANSWER also known as salvage value, is the estimated
value of a fixed asset at the end of its lease term or useful life. Should not
be used to justify marginally profitable investments, because salvage values
are difficult to accurately predict.
16.Two techniques that do not involve the time value of money - ANSWER
Payback & Benefit/Cost Ratio
17.Payback - ANSWER also known as breakeven, is the number of years
that will pass before returns equal the original investment. Disadvantages:
does not compensate for the time value of money and does not recognize
cash flows beyond payback period.
18.Benefit/Cost Ratio - ANSWER Ratio of the total incremental cash flows
to the acquisition cost. The sums of the total cash flows divided by the
initial investment. Disadvantage: it fails to compensate for the time value of
money.
19.Hurdle Rate - ANSWER Minimum acceptable rate of return (set by
management) for an investment. Varied to compensate for risk. The higher
Comprehensive Resource To Help You Ace
2026-2027 Includes Frequently Tested
Questions With ELABORATED 100% Correct
COMPLETE SOLUTIONS
Guaranteed Pass First Attempt!!
Current Update!!
1. Define Benefit - ANSWER A source of cash. Operating cost savings,
additional revenues, tax savings, cash proceeds from a sale of assets
replaced and the predicted salvage value of the new asset at the end of its
useful life.
2. List six Benefits - ANSWER
a) Cash proceeds from sale of old asset
b) Cost savings over old asset
c) New depreciation charges, a non-cash expense
d) Tax benefits such as investment tax credit (ITC); capital losses on sale of old
asset
e) Additional revenue possible because of investment
f) Salvage value of new asset
,3. List six Costs - ANSWER 1. Acquisition costs, not necessarily price
2. Annual operating cost and routine maintenance
3. Depreciation lost from sale of old asset
4. Tax consequences of capital gain on sale of old asset; increased taxes
resulting from improved profitability
5. Revenue lost from sale of old asset
6. Major overhauls
4. Incremental Cash Flows - ANSWER the additional cash flows—outflows
or inflows—expected to result from a proposed capital expenditure.
5. True/False: Cash flows are earnings and will affect the firm's income
statement - ANSWER False
6. Sunk Cost - ANSWER A cost that has already been incurred and that
cannot be changed by any decision made now or in the future, even if the
investment is not undertaken.
7. Investment Tax Credit (ITC) - ANSWER a credit that allows firms to
deduct a percentage of their annual qualified investment expenditures from
the taxes they owe; In capital budgeting it would be considered a reduction
in the initial outlay.
8. Differential Analysis - ANSWER a technique used to identify incremental
costs and benefits. When performing differential analysis, it is very
important to choose and retain a reference point for comparisons, such as
, the company as it is before any investments are undertaken. When
considering investment alternatives, equal time horizons must be used.
9. Items included in a Differential Analysis - ANSWER Taxes
- Capital Gain on sale of old asset
- Depreciation
- ITC
Depreciation lost
Residual Value
10.Useful Life - ANSWER estimated economic life of an asset, which is the
number of years that the asset is expected to be productive.
11.Time Horizon - ANSWER period of time that the analyst can be
confident in the predicted figures. When considering investment
alternatives, equal time horizons must be used.
12.depreciable life - ANSWER the number of years that the company will
depreciate the new asset, and is a function of the depreciation method that
is chosen. It is an arbitrary period dictated by the tax code.
13.Residual cash flows are estimated:
a. when the useful lives of alternatives differ
b. when future depreciation of an old asset is lost
c. in order to quantify the cash flows of an investment beyond
the chosen time horizon
d. A & C
, e. A, B & C - ANSWER A&C
14.Residual Cash Flow - ANSWER The present value of the future cash flow
for the new asset, as of the last year of the chosen time horizon. Estimated
when the useful lives of alternatives are different & one asset has a shorter
economic life than its alternatives.
15.Residual value - ANSWER also known as salvage value, is the estimated
value of a fixed asset at the end of its lease term or useful life. Should not
be used to justify marginally profitable investments, because salvage values
are difficult to accurately predict.
16.Two techniques that do not involve the time value of money - ANSWER
Payback & Benefit/Cost Ratio
17.Payback - ANSWER also known as breakeven, is the number of years
that will pass before returns equal the original investment. Disadvantages:
does not compensate for the time value of money and does not recognize
cash flows beyond payback period.
18.Benefit/Cost Ratio - ANSWER Ratio of the total incremental cash flows
to the acquisition cost. The sums of the total cash flows divided by the
initial investment. Disadvantage: it fails to compensate for the time value of
money.
19.Hurdle Rate - ANSWER Minimum acceptable rate of return (set by
management) for an investment. Varied to compensate for risk. The higher
