Question

Please answer these for me i NEED THEM to study for finals next week!

Q8:Income is $60,000, assets are $250,000, & the minimum required rate of return is 18%. RI is:

20 sec

$10,000

$15,000

$20,000

$25,000

Q9:Which performance measures leads to better business decisions?

ROI

RI

Q10:A cost that differs between two alternatives is known as:

20 sec

an avoidable cost

a differential cost

a relevant cost

all of the above

Q11:These costs are never relevant to decision:

20 sec

avoidable cost

differential cost

sunk cost

fixed costs

Q12:Depreciation is a type of _________ cost:

20 s

avoidable

relevant

future

sunk

Q13: A product line has CM of $120,000 & avoidable fixed costs of $150,000. Should it be dropped?

No, you'd be worse off by $30,000

Yes, you'd be better off by $30,000

No, you'd be worse off by $20,000.

Yes, you'd be better off by $20,000.

Q14: Avoidable costs of making a product internally are $18. Outside offer is $20. Make or buy?

Make and save $2 per unit.

Buy and save $2 per unit.

Q15: Which costs are typically NOT relevant to a decision?

differential costs

variable costs

traceable fixed costs

common fixed costs

Q16:Two categories of capital budgeting decisions are:

short-term and long-term

internal and external

screening and preference

fixed and variable

Q17:This capital budgeting method is used most in business practice:

payback method

net present value

internal rate of return

project profitability index

Q18:Under the NPV method, future cash flows are ____________ back to their present value.

discounted

adjusted

revised

reverted

Q19:A company's cost of capital is usually used as their minimum required rate of return.

TRUE

FALSE

Q20:The discount rate that causes an investment's NPV to be zero is called:

interest rate

factor

internal rate of return

profitability index

Answer 1

Q 8: Income is $60,000, assets are $250,000, & the minimum required rate of return is 18%. RI is:

Residual Income = Net Income - Required return on Asset
Residual Income = 60000 - 250000*18%
Residual Income = 15,000

Q9:

Residual Income (RI) = If you use ROI, the managers might only focus on short-term benefits. Investing in new assets will lower ROI because it's not likely to benefit from your new assets immediately. While residual income eliminates this problem.

Q10: a differential cost - Cost which are incurred over and above the other projects, thus relevant for decision making

Q11: Sunk cost - These are cost which are already incurred and cannot be reversed

Q12: Sunk - Depreciation is just an allocation of cost already incurred in past

Q13:
Decrease in profit (Due to reduced CM) = 120000
Increase in Profit (Due to reduced FC) = 150000
Net increase in profit = 30000
Yes, you'd be better off by $30,000

Q14: Make and save $2 per unit. - $ 18 is relevant cost for production and $ 20 for cost of buy, tus by making a product, they can save $ 2

Q15: common fixed costs - as it do not have monetary impact on project choice decisions

Q16: short-term and long-term - one should project time span whil evaluating projects

Q17: net present value - is the best way to evaluate a project which consider time value of money

Q18: discounted - to consider time value of money

Q19: TRUE - Company seeks recovering atleast this cost from the project

Q20: internal rate of return - Thats the minimum return one should earn from any project