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US CMA Part 1 Capital Investment Decisions — practice questions

Explore 23 free Capital Investment Decisions questions in US CMA Part 1 Accounting. Open each question or exercise to read its content, reference answers and available explanation.

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Capital Investment Decisions questions and exercises with answers

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Which four measurement methods are named for capital investment decisions?Read the answer and worked solution →Which two methods are described as non-time value evaluative methods?Read the answer and worked solution →Which two methods are described as time value of money-based options?Read the answer and worked solution →NPV is the abbreviation for which method?Read the answer and worked solution →IRR is the abbreviation for which method?Read the answer and worked solution →A capital investment decision is described as an occurrence faced by companies:Read the answer and worked solution →The payback period is described as something to consider when making which decision?Read the answer and worked solution →The payback method considers the time frame to recoup an investment based on expected:Read the answer and worked solution →The payback method is described as limited because it does not consider the effects of:Read the answer and worked solution →The accounting rate of return is grouped with the payback method because both are:Read the answer and worked solution →The non-time value methods are described as being examined in which order?Read the answer and worked solution →A method that ignores the time value of money treats a dollar received in five years as:Read the answer and worked solution →Capital investment decisions are described as decisions that are:Read the answer and worked solution →Two projects with identical payback periods may still differ in value because payback ignores:Read the answer and worked solution →A manager wanting to account for discounting should choose which pair of methods?Read the answer and worked solution →The payback method's focus on recouping an investment makes it primarily a measure of:Read the answer and worked solution →Of the four named methods, how many account for the time value of money?Read the answer and worked solution →Choosing a project on payback alone risks favouring one that repays quickly but earns:Read the answer and worked solution →Pull the rope to the right method familyRead the answer and worked solution →Sort the capital budgeting methodsRead the answer and worked solution →Stack the capital budgeting termsRead the answer and worked solution →Match each capital budgeting methodRead the answer and worked solution →Complete the capital budgeting rulesRead the answer and worked solution →

Worked practice questions

Which four measurement methods are named for capital investment decisions?

  1. Payback, ARR, NPV, IRR
  2. Debit, credit, ledger, trial
  3. Cash, accrual, hybrid, cost
  4. Fixed, variable, mixed, step
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Correct answer: A. Payback, ARR, NPV, IRR

1. Capital budgeting has a standard toolkit. 2. A capital investment decision is a common occurrence for companies. 3. Common measurement methods include the payback method and accounting rate of return. 4. Net present value and internal rate of return complete the list. _Source: OpenStax Principles of Accounting, Volume 2: Managerial Accounting (CC BY-NC-SA 4.0), Ch 11 'Capital Budgeting Decisions'_

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Which two methods are described as non-time value evaluative methods?

  1. ARR and IRR
  2. Payback and ARR
  3. NPV and IRR
  4. Payback and NPV
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Correct answer: B. Payback and ARR

1. The four methods divide into two families. 2. Some methods account for the time value of money and some do not. 3. Two non-time value evaluative methods are named. 4. They are the payback method and the accounting rate of return. _Source: OpenStax Principles of Accounting, Volume 2: Managerial Accounting (CC BY-NC-SA 4.0), Ch 11 'Capital Budgeting Decisions'_

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Which two methods are described as time value of money-based options?

  1. NPV and IRR
  2. Payback and ARR
  3. NPV and payback
  4. IRR and ARR
Show answer and solution

Correct answer: A. NPV and IRR

1. The other family discounts future cash flows. 2. The payback method and ARR are the non-time value methods. 3. Two commonly used time value of money-based options are discussed. 4. They are the net present value method and the internal rate of return. _Source: OpenStax Principles of Accounting, Volume 2: Managerial Accounting (CC BY-NC-SA 4.0), Ch 11 'Capital Budgeting Decisions'_

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