Question

Suppose an investment has cash inflows of R dollars at the end of each year for two years. The present value of these cash Inflows using a 12% discount rate will be: Multiple Choice greater than under a 10% discount rate. less than under a 10% discount rate. O equal to that under a 10% discount rate. sometimes greater than under a 10% discount rate and sometimes less; It depends on R.

Answer 1

A. Answer is "B" : Less than a 10 % discount rate

Reason : This is because lower the discount rate, higher are the present value of the cash flows, i.e., present value using a discount rate of 10% would be greater than present value calculated using a discount rate of 12%.

B. Answer is "C" : will reduce the present value of cash flow

Reason : This is because present value is calculated by dividing the cash flow by discount rates and hence higher the discount rate, lower will be the present valiue of cash flows.

C. Answer is "B" : 20%

Reason :

Markup percentage on absorption cost = [(Required rate of return on investment*Investment)+SG&A expenses] / (Unit sales*Unit product cost)

Markup percentage on absorption cost = [(13%*570000)+192300]/(37000*36) = 20%

D. Answer is "B" : 49%

Reason :

Markup percentage on absorption cost = [(Required rate of return on investment*Investment)+SG&A expenses] / (Unit sales*Unit product cost)

Markup percentage on absorption cost = [(10%*267000)+1903000]/(86000*45.8) = 49%