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61
B) Decrease by $ 6,000.
C) Decrease by $10,900.
D) Increase by $ 9,100.
E) Increase by $ 4,300.
79) Lattimer Company had the following results of operations for the past year:
Sales (15,000 units at $12)
$ 180,000
Variable manufacturing costs
$ 97,500
Fixed manufacturing costs
21,000
Selling and administrative expenses (all fixed)
36,000
(154,500 )
Operating income
$ 25,500
A foreign company whose sales will not affect Lattimer's market offers to buy 5,000 units at $7.50
per unit. In addition to existing costs, selling these units would add a $0.25 selling cost for export
fees. Lattimer's annual production capacity is 25,000 units. If Lattimer accepts this additional
business, the special order will yield a:
A) $3,750 profit.
B) $3,250 loss.
C) $8,250 loss.
D) $2,000 loss.
E) $5,000 profit.
80) Markson Company had the following results of operations for the past year:
Sales (8,000 units at $20) $ 160,000
Variable manufacturing costs $ 86,00
0
Fixed manufacturing costs 15,00
0
Variable selling and administrative expenses 12,00
0
Fixed selling and administrative expenses 20,00
0
(133,000 )
Operating income $ 27,000
A foreign company whose sales will not affect Markson's market offers to buy 2,000 units at $14 per
unit. In addition to existing costs, selling these units would increase fixed overhead by $1,600 for the
purchase of special tools. Markson's annual productive capacity is 12,000 units. If Markson accepts
this additional business, its profits will:
A) Decrease by $1,600.
B) Increase by $1,900.
C) Decrease by $5,100.
D) Decrease by $5,650.
E) Increase by $3,500.
81) The break-even time (BET) method is a variation of the:
A) Net present value method.
B) Present value method.
C) Internal rate of return method.
D) Payback method.
E) Accounting rate of return method.
82) The calculation of the payback period for an investment when net cash flow is even (equal) is:
A) Annual net cash flow/Cost of investment.
B) Cost of investment/Total net cash flow.
C) Total net cash flow/Annual net cash flow.
D) Cost of investment/Annual net cash flow.
E) Total net cash flow/Cost of investment.
83) Porter Co. is analyzing two projects for the future. Assume that only one project can be selected.
Project X
Project Y
Cost of machine
$ 68,000
$ 60,000
Net cash flow:
Year 1
24,000
4,000
Year 2
24,000
26,000
Year 3
24,000
26,000
Year 4
0
20,000
If the company is using the payback period method and it requires a payback of three years or less,
which project should be selected?
A) Project Y.
B) Project X.
C) Neither X nor Y is an acceptable project.
D) Both X and Y are acceptable projects.
E) Project Y because it has a lower initial investment.
84) Porter Co. is analyzing two projects for the future. Assume that only one project can be selected.
Cost of machine
Project X
$ 68,000
Project Y
$ 60,000
Net cash flow:
Year 1
24,000
4,000
Year 2
24,000
26,000
Year 3
24,000
26,000
Year 4
0
20,000
The payback period in years for Project X is:
A) 2.00. B) 2.83. C) 3.50. D) 3.83. E) 4.00.
85) Porter Co. is analyzing two projects for the future. Assume that only one project can be selected.
Cost of machine
Project X
$ 68,000
Project Y
$ 60,000
Net cash flow:
Year 1
24,000
4,000
Year 2
24,000
26,000
Year 3
24,000
26,000
Year 4
0
20,000
The payback period in years for Project Y is:
A) 2.00. B) 3.50. C) 3.20. D) 3.83. E) 4.00.
86) The expected amount of time to recover the initial amount of an investment is called the:
A) Interest period.
B) Discounted cash flow period.
C) Budgeting period.
D) Amortization period.
E) Payback period.
87) A company is considering purchasing a machine for $21,000. The machine will generate an
after-tax net income of $2,000 per year. Annual depreciation expense would be $1,500. What is the
payback period for the new machine?
A) 6 years. B) 4 years. C) 10.5 years. D) 14 years. E) 42 years.
88) A company is considering the purchase of a new piece of equipment for $90,000. Predicted annual
cash inflows from this investment are $36,000 (year 1), $30,000 (year 2), $18,000 (year 3), $12,000
(year 4) and $6,000 (year 5). The payback period is:
A) 2.50 years. B) 3.50 years. C) 3.00 years. D) 4.50 years. E) 4.25 years.
89) A disadvantage of using the payback period to compare investment alternatives is that:
A) It cannot be used when cash flows are not uniform.
B) It cannot be used if a company records depreciation.
C) It includes the time value of money.
D) It cannot be used to compare investments with different initial investments.
E) It ignores cash flows beyond the payback period.
90) A company is considering the purchase of a new machine for $48,000. Management predicts that
the machine can produce sales of $16,000 each year for the next 10 years. Expenses are expected to
include direct materials, direct labor, and factory overhead totaling $12,000 per year including
depreciation of $3,000 per year. The company's tax rate is 40%. What is the payback period for the
new machine?
A) 8.9 years. B) 12.0 years. C) 20.0 years. D) 6.0 years. E) 7.5 years.
91) A company is considering the purchase of a new machine for $48,000. Management predicts that
the machine can produce sales of $16,000 each year for the next 10 years. Expenses are expected to
include direct materials, direct labor, and factory overhead totaling $12,000 per year including
depreciation of $3,000 per year. The company's tax rate is 40%. What is the annual cash flow for
the new machine?
A) $4,000. B) $2,400. C) $7,000. D) $5,400. E) $1,600.
