i) While making 1000 units of a product company has following costs:

• Direct materials: $5 per unit
• Direct labor: $4 per unit
• Variable manufacturing overhead: $3 per unit
• Fixed manufacturing overhead: $6,000 per year

The management decided to use variable costing. The cost as per variable costing method will be:

1. a) $18
2. b) $9
3. c) $12
4. d) $15

ii) IRR of a project is 20%. Which of the following is true regarding projects NPV?

1. a) Zero
2. b) Negative at 15%
3. c) Negative at 25%
4. d) Indeterminate

iii) You accessed a project and figured the cash inflows for the next 8 years. Only in the end you realized that you had underestimated the discount rate. You made the correction. What would be impact of this correction:

1. a) NPV will decrease and IRR will have no change.
2. b) No change in both NPV and IRR
3. c) NPV will increase and IRR will also increase.
4. d) NPV will decrease and IRR will decrease.

iv) A company has a cost of equity (Ke) of 18% and a cost of debt (Kd) of 6%. It has 40% debt in it capital structure. It has two investment opportunities of similar risk to its existing business. A costs CHF 4m, will yield 9% and be financed by debt and B costs CHF 6m will yield 15% and be financed by equity. The company should:

1. a) Accept A alone
2. b) Accept B alone
3. c) Accept both projects
4. d) Accept neither project

v) The IRR (internal rate of return) method used to compare two investment projects

1. a) Ignores the size of each of the projects
2. b) Always provides only one IRR for each project
3. c) Is not shown as a percentage
4. d) Is based on accounting profits