• Vanikord Corporation currently has two divisions which had the following operating results for last year:

	Cork Division	Rubber Division
Sales	$500,000	$400,000
Variable costs	210,000	300,000
Contribution margin	290,000	100,000
Traceable fixed costs	130,000	70,000
Segment margin	160,000	30,000
Allocated common corporate fixed costs	90,000	50,000
Net operating income (loss)	$70,000	($20,000)

Because the Rubber Division sustained a loss, the president of Vanikoro is considering the elimination of this division. All of the division's traceable fixed costs could be avoided if the division was dropped. None of the allocated common corporate fixed costs could be avoided. If the Rubber Division was dropped at the beginning of last year, how much higher or lower would Vanikoro's total net operating income have been for the year?

	A.	$20,000 higher
	B.	$50,000 higher
	C.	$50,000 lower
	D.	$30,000 lower

• Bullinger Corporation has provided the following data concerning an investment project that it is considering:

Initial investment	$470,000
Annual cash flow	$134,000	per year
Salvage value at the end of the project	$27,000
Expected life of the project	4	years
Discount rate	14%

The net present value of the project is closest to:

	A.	$93,000
	B.	$406,326
	C.	($63,674)
	D.	($79,658)

	A.	$1,556
	B.	($35)
	C.	$11,000
	D.	$8,000

• (Ignore income taxes in this problem.) Jason Corporation has invested in a machine that cost $80,000, that has a useful life of eight years, and that has no salvage value at the end of its useful life. The machine is being depreciated by the straight-line method, based on its useful life. It will have a payback period of five years. Given these data, the simple rate of return on the machine is closest to:

	A.	6.8%
	B.	7.5%
	C.	9%
	D.	12%

The best capital budgeting method for ranking investment projects of different dollar amounts is the:

	A.	project profitability index.
	B.	net present value method.
	C.	simple rate of return method.
	D.	payback period.

True

False