QUESTION 1

Carr Company is considering two capital investment proposals. Estimates regarding each project are provided below:

	Project Soup		Project Nuts
Initial investment	$400,000		$600,000
Annual net income	30,000		46,000
Net annual cash inflow	110,000		146,000
Estimated useful life	5 years		6 years
Salvage value	-0-		-0-

The company requires a 10% rate of return on all new investments.

	Present Value of an Annuity of 1
Periods		9%		10%		11%		12%
5		3.890		3.791		3.696		3.605
6		4.486		4.355		4.231		4.111

The net present value for Project Nuts is

QUESTION 2:

Benet Division of United Refinery Company's operating results include: controllable margin, $200,000; sales $2,200,000; and operating assets, $800,000. The Benet Division's ROI is 25%. Management is considering a project with sales of $100,000, variable expenses of $60,000, fixed costs of $40,000; and an asset investment of $150,000. Should management accept this new project?

A) Yes, since ROI will increase.

B) No, since ROI will be lowered.

C) Yes, since additional sales always mean more customers.

D) No, since loss will be incurred.

QUESTION 3:

The standard number of hours that should have been worked for the output attained is 10,000 direct labor hours and the actual number of direct labor hours worked was 10,500. If the direct labor price variance was $10,500 unfavorable, and the standard rate of pay was $12 per direct labor hour, what was the actual rate of pay for direct labor?

QUESTION 4:

A company's planned activity level for next year is expected to be 100,000 machine hours. At this level of activity, the company budgeted the following manufacturing overhead costs:

Variable			Fixed
Indirect materials	$120,000		Depreciation	$50,000
Indirect labor	160,000		Taxes	10,000
Factory supplies	20,000		Supervision	40,000

A flexible budget prepared at the 90,000 machine hours level of activity would show total manufacturing overhead costs of:

QUESTION 5:

Cleaners, Inc. is considering purchasing equipment costing $60,000 with a 6-year useful life. The equipment will provide cost savings of $14,600 and will be depreciated straight-line over its useful life with no salvage value. Cleaners requires a 10% rate of return.

	Present Value of an Annuity of 1
Period	8%	9%	10%	11%	12%	15%
6	4.623	4.486	4.355	4.231	4.111	3.784

What is the approximate profitability index associated with this equipment?