11. Net income is used in the numerator of the return on investment formula.

True

False

12. The return on investment of a company can be improved by either increasing average total assets or decreasing operating income.

True

False

20. A company has two different products that sell to separate markets. Financial data are as follows:

	Product A	Product B	Total
Revenue	$15,000	$9,000	$24,000
Variable costs	(8,000)	(9,200)	(17,200)
Fixed costs (allocated)	(2,000)	(1,000)	(3,000)
Operating income (loss)	$5,000	$(1,200)	$3,800

Assume that fixed costs are all unavoidable and that dropping one product would not impact sales of the other. Because the contribution margin of Product B is negative, it should be dropped.

True

False

24. Doro Fill Company fabricates automobiles. Each auto includes one wiring harness, which is currently made in-house. Details of the harness fabrication are as follows:

Volume	800	units per month
Variable cost per unit	$6	per unit
Fixed costs	$13,000	per month

A factory in Indonesia has offered to supply Doro Fill with ready-made units for a cost of $12 each. Assume that Doro Fill's fixed costs are unavoidable and that the company will not be able to use the excess capacity in any profitable manner. In order to maximize operating income, Doro Fill should not outsource.

True

False

29. The net present value and internal rate of return methods are appropriate for longer-term investments because they ignore the time value of money.

True

False

36. An investment today of $8,424 at 6% will yield total payments of $10,000 over five years. The reason for this increase is that the interest is being earned on principal that is left invested each year.

True

False

38. When the internal rate of return is the same as the required rate of return, the net present value of an investment will be positive.

True

False

39. If an investment's internal rate of return is higher than the required rate of return, the company should reject the investment.

True

False