The stand-alone principle advocates that project analysis should be based solely on ___________ costs. variable fixed sunk total incremental Cooper Woodworking is considering two projects, both of which have an initial cost of $65,000 and total cash inflows of $80,000. The cash inflows of project A are $10,000, $15,000, $25,000, and $30,000 over the next four years, respectively. The cash inflows for project B are $30,000, $25,000, $15,000, and $10,000 over the next four years, respectively. Which one of the following statements is correct if Cooper requires a 10.5 percent rate of return and also has a required payback period of 4 years? Both projects should be accepted. Both projects should be rejected. Project A should be accepted and project B should be rejected. Project A should be rejected and project B should be accepted. You should be indifferent to accepting either or both projects. Harper Jones is evaluating an investment project will have an installed cost of $518,297. The cash flows over the 4-year life of the investment are projected to be $287,636, $203,496, $63,024 and $92,556, respectively. What is the NPV of this project if the discount rate is 6.5 percent? $37,306 $55,318 $86,127 $128,415 $169,193 In actual practice, managers frequently use the: I. average accounting return method because the information is so readily available II. internal rate of return because the results are easy to communicate and understand III. discounted payback because of its simplicity IV. net present value because it is considered by many to be the best method of analysis I and III only II and III only I, II, and IV only II, III, and IV only I, II, III, and IV Forecasting risk emphasizes the point that the correctness of any decision to accept or reject a project is highly dependent upon the Answer ability to recoup any investment in net working capital. method of analysis used to make the decision. initial cash outflow. length of the project. accuracy of the projected cash flows. The field of Organization Behavior doesnt just look at the individual and the organization; it also looks at the ______________________. Family Group Technology Strategy Business model The Coffee Express has computed its fixed costs to be $0.425 for every cup of coffee it sells when operating at an annual sales level of 380,000 cups. The sales price is $2.19 per cup while the variable cost per cup is $0.89. How many cups of coffee must it sell to break-even on a cash basis? 83,814 107,667 124,231 129,480 161,500 Barker Paint Products is evaluating a project that is expected to provide annual cash flows of $11,600 for 10 years and requires an investment today of $56,600. At what rate would Barker be indifferent between accepting the project and rejecting it? Answer 15.29 percent 15.40 percent 15.52 percent 15.63 percent 15.75 percent Ultimate Home Appliance Emporium is expanding its product offerings in order to satisfy a wider range of customer tastes and styles. The expansion project includes increas
ing the floor inventory by $610,000 and increasing its debt to suppliers by 75 percent of that amount. Ultimate plans to expand the size of its showroom and expects to spend $350,000 for an architect and building contractor to do the renovation. As part of the expansion plan, the company will be offering credit to its customers and thus expects accounts receivable to rise by $66,500. For the project analysis, what amount should be used as the initial cash flow for net working capital? -$70,000 -$156,000 -$219,000 -$246,000 -$391,000 The president of Worldwide Gadgets would like to offer special, deeply discounted sale prices to Worldwides most loyal and best customers under the following terms: 1. The prices will apply only to units purchased in excess of the quantity normally purchased by any given customer. 2. The units purchased must be paid for in cash at the time of sale no credit terms to be offered. 3. The total quantity sold under these terms to all customers cannot exceed the excess capacity of the firm. 4. The net profit of the firm should not be negatively affected. 5. The prices will be in effect for ten days only. Given these conditions, the special sale price should be set equal to the marginal cost of materials only. average variable cost of materials only. marginal cost of all variable inputs. average cost of all variable inputs. sensitivity value of the variable costs. Martelli Drywall Manufacturing is analyzing a new type of drywall sealant for interior walls. Management has compiled the following information to determine whether or not this new sealant should be manufactured. Projected fixed costs are $782,320 and the anticipated annual operating cash flow is $254,000. The sealant project has an initial fixed asset requirement of $1,750,000, which would be depreciated straight-line to zero over the 10-year life of the project. What is the degree of operating leverage for this project? 3.78 3.92 4.08 4.27 4.52 Marshall Communications, Inc. is considering a new 5-year expansion project that requires an initial fixed asset investment of $2,484,000. The fixed asset will be depreciated straight-line to zero over a 5-year life, after which time it is anticipated the asset will be worthless. The project is estimated to generate $2,208,000 in annual sales, with costs of $883,200. The tax rate is 33 percent and the required return on the project is 9 percent. What is the net present value for this project? Answer $1,606,202 $1,598,040 $1,533,627 $1,233,867 $1,051,560 McElroy Carousel Horses is considering adding a new product line that will require an initial investment of $484,500 in fixed assets and that will be depreciated using the straight-line method to a zero book value over the 6-year life of the project. The project is expected to increase annual sales by $338,000 and annual cash expenses by $184,000. The company has a marginal tax rate of 32 percent. What is the annual value of the depreciation tax shield? Answer $5,120 $13,160 $25,840 $32,560 $41,840