Question

QUESTION 6

1. What factor(s), besides the NPV of an investment, should managers consider in a capital budgeting decision?

   		The effect of the investment on the manager's short-term incentives
   		The effect of the investment on the company's reputation
   		Tax shields related to depreciation that would result from the investment
   		All three of the other answers

2 points   

QUESTION 7

1. Which of the following three investments will have the highest NPV? All three cases require an initial investment of $45,000, and the required rate of return is 10%.

   	A	B	C
   Year 1 net cash in	12,000	27,000	42,000
   Year 2 net cash in	22,000	27,000	32,000
   Year 3 net cash in	32,000	27,000	22,000
   Year 4 net cash in	42,000	27,000	12,000
   Total cash flow	108,000	108,000	108,000

   		Investment B
   		Investment C
   		All three investments will have the same NPV
   		Investment A

2 points   

QUESTION 8

1. Sam's Manufacturing Company currently makes 100 units of a necessary component. Management is considering outsourcing this component for a cost of $1,700 per unit. Sam's incurs the following total production costs:

   Direct Materials	$80,000
   Direct Labor	23,000
   Variable Overhead	37,000
   Fixed Overhead	24,000

   
   If production is outsourced, none of the fixed overhead costs will be eliminated. How would profits be impacted if Sam's bought the component?

   		Profits would go up by $67,000
   		Profits would go down by $6,000
   		Profits would go down by $30,000
   		Profits would go up by $6,000

2 points   

QUESTION 9

1. Adler Company manufactures 10,000 units of a product for a unit sales price of $88. Variable costs are $50 per unit and annual fixed manufacturing costs total $240,000. The company has a one-time opportunity to sell an additional 3,000 units at $70 each in a foreign market. If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect income as follows:

   		Income would decrease by $12,000.
   		Income would increase by $12,000.
   		Income would increase by $210,000.
   		Income would increase by $60,000.

2 points   

QUESTION 10

1. Globiane, Inc. has designed a new product that could be sold for $1,000. If management requires a profit of 30% of the selling price, what is the highest cost (target cost) management would accept to make this product?

   		$700
   		$300
   		$1,429
   		$3,333

Answer 1

6.All three of the other answer.

7.Answer is INVESTMENT C

YEAR	A			B			C
Year 1 net cash in	12,000.00	0.909	10,908	27,000.00	0.909	24,543	42,000.00	0.909	38,178
Year 2 net cash in	22,000.00	0.826	18,172	27,000.00	0.826	22,302	32,000.00	0.826	26,432
Year 3 net cash in	32,000.00	0.751	24,032	27,000.00	0.751	20,277	22,000.00	0.751	16,522
Year 4 net cash in	42,000.00	0.683	28,686	27,000.00	0.683	18,441	12,000.00	0.683	8,196
Present Value of Inflow			81,798			85,563			89,328
Present value of Outflow			45000			45000			45000
Net Present Value			36,798			40,563			44,328

8.)

Direct Materials	80,000.00
Direct Labor	23,000.00
Variable Overhead	37,000.00
Total Costs	140,000.00
Cost Per unit of Make	1,400.00

Profit would go down by = (1,700 - 1,400) x 100 = 30,000

9)Income would increase by = (70 - 50) x 3,000

=60,000

10)Profit = 1,000 x 30% = 300

So Target Cost can be 1,000 - 300 = 700