Question

Which of the following depreciation methods does not use salvage value?

	A.	Straight-line
	B.	Unit output
	C.	Double declining balance
	D.	Some-of-the-year-digits

Which of the following statements is correct?

	A.	To have low IRR, low WACC
	B.	To have high IRR, low WACC
	C.	To have low IRR, high WACC
	D.	To have high IRR, high WACC Which of the following depreciation methods is good for “Income Reporting”? A. Unit output B. Some-of-the-year-digits C. Double declining balance D. Straight-line

Which of the following depreciation methods is good for “Tax Purposes”? In other words, the usage of this method will reduce your tax obligation.

	A.	Straight-line
	B.	Double declining balance
	C.	Unit output
	D.	Some-of-the-year-digits

As the interest rate increases, the present value of an amount to be received at the end of a fixed period ____

	A.	Decreases
	B.	Increases
	C.	Remains the same
	D.	Not enough information to tell

which of the following is an example of Sunk cost:

	A.	Ford Pinto
	B.	Chevy Nova
	C.	Ford Crown Victoria
	D.	Ford Edsel

If we are covering materials and labor costs of an item in a Managerial Accounting course, we are referring to which of the following concepts:

	A.	Overhead cost
	B.	Manufacturing cost
	C.	Prime cost
	D.	Conversion cost

If an airline places an order to buy 40 new planes and negotiates an attractive price for this fleet, because it buys so many planes, this is an example of:

	A.	Fixed cost
	B.	Mixed cost
	C.	Economies of Scale
	D.	Variable cost

Answer 1

Ans Depriciation method that doesnot use salvage value is Double declining balance method . Since the formula for Double declining balance method is :

Periodic Depriciation Expense = Beginning book value * Rate of depreciation.

Ans The statement to have high IRR and low WACC is correct since in order to accept a project the Internal Rate of Return (IRR) should be greater than Weighted Average Cost of Capital (WACC) .

Ans Straight line depriciation method is good for income reporting since it is a most commonly used method for calculating depriciation under Generally Accepted Accounting Principles(GAAP) . This method is simplest to calculate , result in fewer errors, and transition well from company prepared statements to tax returns.

Ans Double declining balance method is good for tax purposes since the usage of this method reduces the tax obligation as it minimises the income tax in the first year by producing highest depreciation amount for that year.

Ans As the interest rate increases, the present value of an amount to be received at the end of a fixed period increases since increase in interest increases the future value and decreases the present value .

Ans If we are covering materials and labor costs of an item in a Managerial Accounting course, we are referring to Prime cost concept since the formula of prime cost = Direct material cost + Direct labour cost.