QUESTION 6 What factor(s), besides the NPV of an investment, should managers consider in a capital budgeting decision The effect of the investment on the manager's short term incentives The effect of the investment on the company's reputation Tax shields related to depreciation that would result from the investment All three of the other answers 2 points QUESTION 7 Which of the following three investments will have the highest NPV All three cases require an initial investment of $45,000, and the required rate of return is 10 A B C Year 1 net cash in 12,000 27,000 42,000 Year 2 net cash in 22,000 27,000 32,000 Year 3 net cash in 32,000 27,000 22,000 Year 4 net cash in 42,000 27,000 12,000 Total cash flow 108,000 108,000 108,000 Investment B Investment C All three investments will have the same NPV Investment A 2 points QUESTION 8 Sam's Manufacturing Company currently makes 100 units of a necessary component Management is considering outsourcing this component for a cost of $1,700 per unit Sam's incurs the following total production costs Direct Materials $80,000 Direct Labor 23,000 Variable Overhead 37,000 Fixed Overhead 24,000 If production is outsourced, none of the fixed overhead costs will be eliminated How would profits be impacted if Sam's bought the component Profits would go up by $67,000 Profits would go down by $6,000 Profits would go down by $30,000 Profits would go up by $6,000 2 points QUESTION 9 Adler Company manufactures 10,000 units of a product for a unit sales price of $88 Variable costs are $50 per unit and annual fixed manufacturing costs total $240,000 The company has a one time opportunity to sell an additional 3,000 units at $70 each in a foreign market If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect income as follows Income would decrease by $12,000 Income would increase by $12,000 Income would increase by $210,000 Income would increase by $60,000 2 points QUESTION 10 Globiane, Inc has designed a new product that could be sold for $1,000 If management requires a profit of 30 of the selling price, what is the highest cost (target cost) management would accept to make this product $700 $300 $1,429 $3,333

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QUESTION 6 What factor(s), besides the NPV of an investment, should managers consider in a capital budgeting decision? The effect of the investment on the

QUESTION 6

What factor(s), besides the NPV of an investment, should managers consider in a capital budgeting decision?

		The effect of the investment on the manager's short-term incentives
		The effect of the investment on the company's reputation
		Tax shields related to depreciation that would result from the investment
		All three of the other answers

2 points

QUESTION 7

Which of the following three investments will have the highest NPV? All three cases require an initial investment of $45,000, and the required rate of return is 10%.

	A	B	C
Year 1 net cash in	12,000	27,000	42,000
Year 2 net cash in	22,000	27,000	32,000
Year 3 net cash in	32,000	27,000	22,000
Year 4 net cash in	42,000	27,000	12,000
Total cash flow	108,000	108,000	108,000

		Investment B
		Investment C
		All three investments will have the same NPV
		Investment A

2 points

QUESTION 8

Sam's Manufacturing Company currently makes 100 units of a necessary component. Management is considering outsourcing this component for a cost of $1,700 per unit. Sam's incurs the following total production costs:

Direct Materials $80,000

Direct Labor 23,000

Variable Overhead 37,000

Fixed Overhead 24,000

If production is outsourced, none of the fixed overhead costs will be eliminated. How would profits be impacted if Sam's bought the component?

Profits would go up by $67,000

Profits would go down by $6,000

Profits would go down by $30,000

Profits would go up by $6,000

2 points

QUESTION 9

Adler Company manufactures 10,000 units of a product for a unit sales price of $88. Variable costs are $50 per unit and annual fixed manufacturing costs total $240,000. The company has a one-time opportunity to sell an additional 3,000 units at $70 each in a foreign market. If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect income as follows:

Income would decrease by $12,000.

Income would increase by $12,000.

Income would increase by $210,000.

Income would increase by $60,000.

2 points

QUESTION 10

Globiane, Inc. has designed a new product that could be sold for $1,000. If management requires a profit of 30% of the selling price, what is the highest cost (target cost) management would accept to make this product?

$700

$300

$1,429

$3,333