Explain questions on investments, transfer pricing and capital budgeting

1. Return on investment (ROI) encourages managers to accept all investment decisions that will benefit the company as a whole when it is used as a measure of performance.

a. True

b. False

2. The selling division in a transfer pricing situation would want the transfer price to be set to cover at least the full cost per unit plus the lost contribution margin per unit on outside sales.

a. True

b. False

3. Operating assets include cash, accounts receivable, and inventory but not any depreciable fixed assets.

a. True

b. False

4. One criticism of the payback method is that it ignores cash flows that occur after the payback point has been reached.

a. True

b. False

5. The cost of capital involves a blending of costs of all sources of capital funds, both debt and equity.

a. True

b. False

6. Because of the uncertainty and large cost involved in investments in automated equipment, any intangible benefits from these projects should be ignored.

a. True

b. False

7. The simple rate of return method places its focus on cash flows instead of on accounting net operating income.

a. True

b. False

8. All cash inflows are taxable.

a. True

b. False