AICPA CPA-Business Exam - Topic 3 Question 104 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 104
Topic #: 3

The Keego Company is planning a $200,000 equipment investment, which has an estimated five-year life with no estimated salvage value. The company has projected the following annual cash flows for the investment.

The net present value for the investment is:

A$18,800

B$196,200

C$(3,800)

D$91,743

Show Suggested Answer

Suggested Answer: C

Choice 'c' is correct. The most logical sequence in planning and controlling capital expenditures is to begin with identifying capital addition projects and other capital needs.

Choice 'a' is incorrect. Analyzing capital addition proposals omits other capital needs.

Choice 'b' is incorrect. Analyzing and evaluating all promising alternatives is beyond the scope of planning and controlling capital expenditures.

Choice 'd' is incorrect. Developing capital budgets is the same as planning and controlling capital expenditures.

by Adelina at Dec 06, 2024, 08:55 PM

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Dawne

4 months ago

I calculated it, and I got $(3,800). What gives?

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Hollis

5 months ago

Definitely leaning towards option A, looks solid!

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Cortney

5 months ago

Wait, how can the NPV be $196,200? That seems way too high.

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Margot

5 months ago

I think the NPV is positive, so option A sounds right!

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Coletta

5 months ago

The investment is $200,000 with no salvage value.

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Ciara

5 months ago

I think the answer is around $18,800, but I can't recall if I considered all the cash flows correctly.

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Loren

6 months ago

I feel like I might have mixed up the cash flows and the initial investment in my calculations.

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Marylyn

6 months ago

This seems similar to a practice question we did last week; I think the cash flows need to be discounted properly to find the NPV.

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Luisa

6 months ago

I remember calculating NPV in class, but I'm not sure if I got the discount rate right for this question.

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Dudley

6 months ago

This is tricky without the discount rate. I'll need to make an educated guess and then check the answers to see if I'm in the right ballpark. Gotta give it my best shot on the exam.

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Merilyn

6 months ago

Okay, let's think this through step-by-step. First, I need to find the present value of each year's cash flow using the discount rate. Then I'll add those up and subtract the initial investment to get the NPV. I've got this!

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Lynsey

6 months ago

Hmm, not sure I'm comfortable with this one. The cash flow projections and discount rate aren't given, so I'll need to make some assumptions. Might be better to skip this and focus on the questions I'm more confident about.

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Iluminada

6 months ago

This looks like a straightforward net present value (NPV) calculation. I'll need to discount the annual cash flows to the present value using the appropriate discount rate, then subtract the initial investment to get the NPV.

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Jamie

11 months ago

I bet the Keego Company wishes they had a crystal ball for this one. Time to put on my accounting wizard hat and figure this out.

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Erick

10 months ago

C) $(3,800)

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Abel

10 months ago

B) $196,200

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Belen

11 months ago

A) $18,800

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Eden

12 months ago

Oof, the projected cash flows look like a roller coaster ride. I hope the Keego Company has a strong stomach for these kinds of investments!

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Catarina

11 months ago

User 2: Yeah, it's like a roller coaster ride for sure.

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Sylvia

11 months ago

User 1: Looks like the cash flows are all over the place.

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Krissy

12 months ago

Alright, let's see... the correct answer has to be the one that makes the least sense, right? Just kidding, I'm going to focus and get this one right.

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