QUESTION 7

1. Wheeler Company is a price-taker and uses a target-pricing approach. Refer to the following information:

Production volume	600,000	units per year
Market price	$34	per unit
Desired operating income	17%	of total assets
Total assets	$13,800,000

What is the desired profit for the year?

a		$6,600,000
b		$102,000
c		$2,346,000
d		$20,400,000

QUESTION 8

1. When replacing an old asset with a new one, the original purchase price of the old asset represents a(n) ________ cost.

a		differential
b		sunk
c		relevant
d		opportunity

QUESTION 9

1. Gateway Graphics is considering an investment in new printing equipment costing $502,000. The equipment will be depreciated on a straight-line basis over a five-year life and is expected to generate net cash inflows of $122,000 the first year, $158,000 the second year, and $160,000 every year thereafter until the fifth year. What is the payback period for this investment? The residual value is zero. (Round your answer to two decimalplaces.)

a		3.39 years
b		2.80 years
c		4.30 years
d		3.11 years

QUESTION 10

________ refers to the benefit given up by choosing an alternative course of action.

a		Opportunity cost
b		Relevant cost
c		Sunk cost
d		Irrelevant cost

QUESTION 11

Which of the following best describes the term capital rationing?

a		a process of ranking and choosing among alternative capital investments based on the availability of funds
b		a method which shows the effect of an investment on a company's accrual-based income
c		a process of controlling operating costs when adequate funds are not available
d		a method of determining the period within which the cash invested is recouped

QUESTION 12

Carolina Logistics, Inc. is considering three investment opportunities with the following payback periods:

	Project X	Project Y	Project Z
Payback period	3 years	2.5 years	2.8 years

1. Use the decision rule for payback to rank the projects from most desirable to least desirable, all else beingequal.

a		Y, Z, X
b		Y, X, Z
c		X, Y, Z
d		Z, Y, X