QUESTION 1

Felice Lucas has just won the state lottery and has the following three payout options for after-tax prize money: i. $170,000 per year at the end of each of the next six years ii. $312,000 (lump sum) now iii. $508,000 (lump sum) six years from now The annual discount rate is 9%. Compute the present value of the first option. (Round your answer to the nearest whole dollar.) Present value of an ordinary annuity of $1:

	8%	9%	10%
1	0.926	0.917	0.909
2	1.783	1.759	1.736
3	2.577	2.531	2.487
4	3.312	3.240	3.170
5	3.993	3.890	3.791
6	4.623	4.486	4.355
7	5.206	5.033	4.868

Present value of $1:

	8%	9%	10%
1	0.926	0.917	0.909
2	0.857	0.842	0.826
3	0.794	0.772	0.751
4	0.735	0.708	0.683
5	0.681	0.650	0.621
6	0.630	0.596	0.564
7	0.583	0.547	0.513
a		$762,620
b		$850,000
c		$457,251
d		$482,000

QUESTION 2

1. Armor Sports, Inc. has two product linesbatting helmets and football helmets. The income statement data for the most recent year is as follows:

	Total	Batting Helmets	Football Helmets
Sales revenue	$1,040,000	$700,000	$340,000
Variable costs	(430,000)	(150,000)	(280,000)
Contribution margin	$610,000	$550,000	$60,000
Fixed costs	(180,000)	(90,000)	(90,000)
Operating income (loss)	$430,000	$460,000	$(30,000)

What is the effect of dropping football helmets line on the operating income of the company? (Assume that fixed costs remain unchanged and that there would be no adverse effect on othersales.)

a		Operating income will increase by $90,000.
b		Operating income will increase by $30,000.
c		Operating income will decrease by $60,000.
d		Operating income will decrease by $340,000.

QUESTION 3

Odeletta Corporation is considering an investment of $518,000 in a land development project. The investment will yield cash inflows of $220,000 per year for five years. The company uses a discount rate of 9%. What is the net present value of the investment? Present value of an ordinary annuity of $1:

	8%	9%	10%
1	0.926	0.917	0.909
2	1.783	1.759	1.736
3	2.577	2.531	2.487
4	3.312	3.24	3.17
5	3.993	3.89	3.791
a		$341,880
b		$220,000
c		$337,800
d		$238,280

QUESTION 4

Which of the following is a capital budgeting method?

a		return on equity
b		return on assets
c		inventory turnover
d		net present value

QUESTION 5

Dugout Water Products sells 2000 kayaks per year at a price of $470 per unit. Dugout sells in a highly competitive market and uses target pricing. The company has $990,000 of assets, and the shareholders wish to make a profit of 18% on assets. Assume all products produced are sold. What is the target full productcost?

a		$1,109,200
b		$17,820,000
c		$940,000
d		$761,800

QUESTION 6

Carver Company manufactures a component used in the production of one of its main products. The following cost information is available:

Direct materials	$410
Direct labor (variable)	110
Variable manufacturing overhead	80
Fixed manufacturing overhead	35

A supplier has offered to sell the component to Carver for $640 per unit. If Carver buys the component from the supplier, the released facilities can be used to manufacture a product that would generate a contribution margin of $20,000 annually. Assuming that Carver needs 3000 components annually and that the fixed manufacturing overhead is unavoidable, what would be the impact on operating income if Carveroutsources?

a		Operating income would increase by $120,000.
b		Operating income would decrease by $20,000.
c		Operating income would increase by $20,000.
d		Operating income would decrease by $100,000.