Question

1. After developing the iPhone, Apple also developed iPhone accessories such as a shield case, charger, car mounts, etc. Thus, the iPhone serves as a _____________ “side-effect” or externality since the sale of the iPhone will likely lead to benefits or more cash flow to these other accessories.

Select one:

A. Positive

B. Negative

2. A project has cash flows of –$78,400, $22,500, $37,300, and $53,200 for Years 0 to 3, respectively. The required rate of return is 4 percent. The regular payback for this project is ________ years, while the discounted payback for this project is ______ years. Assuming that the preset (cutoff) rate is 2.50 years, in both cases you should __________ the project.

Select one:

A. 1.46; 1.53; accept

B. 2.54; 2.89; reject

C. 2.35; 2.89; reject

D. 2.35; 2.47; accept

E. 2.35; 2.89; accept

3. You’re trying to determine whether to expand your business by building a new manufacturing plant. The plant has an installation cost of $16.0 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected net income of $1,570,000, $1,684,200, $1,716,300, and $1,097,400 over these four years, respectively, what is the project’s average accounting return (AAR)?

Select one:

A. 9.00%

B. 11.24%

C. 19.00%

D. 22.00%

E. 25.16%

Answer 1

Solution 1.>

After developing the iPhone, Apple also developed iPhone accessories such as a shield case, charger, car mounts, etc. Thus, the iPhone serves as a positive “side-effect” or externality since the sale of the iPhone will likely lead to benefits or more cash flow to these other accessories.

Solution 2.>

Since both the values are within the cutoff range, we will accept the project.

Hence the correct answer is (D)

The formula used are:

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