Exam 25: Short-Run Decision Analysis and Capital Budgeting

Valprado Industries is considering purchasing a machine that will produce plastic kitchenware.The machine would be used for five years,would cost $35,000,and would have a $5,000 residual value.It is expected to increase annual net cash inflows by $8,800.Valprado uses the straight-line method of depreciation.Using the above facts and the present value factors below,determine the following. (a)Payback period (Round your answer to one decimal place) (b)Accounting rate of return (Round your answer to one decimal place) (c)Net present value of the investment based on a 12 percent minimum desired rate of return (Use parentheses to indicate a negative net present value.Round your answer to the nearest dollar).

A cost that changes between the alternatives is known as a differential cost.

Rodriguez Inc.is considering a project that costs $200,000.The company expects the annual cash revenues to be $75,000 and annual expenses (including depreciation)to be $30,000.The project has a ten-year useful life and a residual value of $25,000.Assume Rodriguez Inc.uses straight line method of depreciation. -Using the above information for Rodriguez,the project's payback period is (Round your final answer to two decimal places. )

The purpose of incremental analysis is to find the alternative

The sales mix analysis that uses incremental analysis to identify the relevant costs and revenues,consists of two steps.

The accounting rate-of-return method considers the time value of money.

The most commonly used methods in the evaluation of capital investment proposals are net present value method,payback period method,and the accounting rate-of-return method.

The Nick Lumber Company is in the process of deciding whether to sell or process further rough-sawn lumber.The joint cost of producing the rough-sawn lumber is $10,500.The following data are available: a.What is the incremental effect,increase or (decrease),on operating income of processing each type of lumber further? b.Which type of lumber should be processed further?

Avoidable costs are the direct variable costs and direct fixed costs traceable to the segments.

A project with a net present value of zero should not be accepted.

Supporting poor-return proposals that fall below the minimum rate of return eventually lowers the entire company's profitability.

Which of the following statements about incremental analysis is false?

Conduct a preliminary screening of a new capital investment is the last step in the six step process of capital investment analysis.

The proposals that will produce poor returns will have a negative impact on an organization's profitability.

Sand Canyon Enterprises is analyzing its sales mix to find out if it is maximizing its profits.The company produces three similar items: X,Y,and Z.All three of these products are made with the same equipment,but the machine hours available to make these products are limited.Product line statistics are as follows: Determine whether the existing sales mix is the most profitable one possible.If your answer is no,offer your suggestion to improve the sales mix.Round answers to two decimal places.

Which of the following is measured by the payback period method?

Capital investment analysis is also known as capital budgeting.

Opportunity costs are ignored for decision making.

The six steps of capital investment analysis are used exclusively for short-term planning purposes.

During 2014,America Inc.produced,among other products,9,500 cameras,incurring the following unit costs: $5 in direct materials,$3 in direct labor,$2 in variable overhead,$4 in fixed overhead,$0.50 in variable selling and administrative expenses,and $1 in fixed selling and administrative expenses.An outsider had offered to produce the cameras for $12 each.Assuming that the factory space would have been idle otherwise,acceptance of the outside offer would have