(TCO 6) Hyde Inc. is comparing several alternative capital budgeting projects as
ID: 2415552 • Letter: #
Question
(TCO 6) Hyde Inc. is comparing several alternative capital budgeting projects as shown below.
Projects
A
B
C
Initial Investment
$110,000
$90,000
$50,000
Present value of cash inflows
$100,000
$100,000
$60,000
Using the profitability index, rank the projects, starting with the most attractive. (Points : 5) A, C, B
A, B, C
C, A, B
C, B, A
Month
Miles
Total Cost
January
80,000
$96,000
February
50,000
$80,000
March
70,000
$94,000
April
90,000
$130,000
Projects
A
B
C
Initial Investment
$110,000
$90,000
$50,000
Present value of cash inflows
$100,000
$100,000
$60,000
Explanation / Answer
PROFITIBILITY INDEX
ANSWER: C , B , A
Q 11)
NET PRESENT VALUE = PRESENT VALUE CASHINFLOW - PROJECT COST
= $ 85000 X 4 YEARS DISC FACTOR @ 10% - $ 210000
= $ 85000 X 3.1698 - $ 210000
= $ 269433 - $ 210000 =$ 59433
THEREFORE NPV = $ 59433
Q12) Budgeted Raw Materials is not needed in preparing PRODUCTION BUDGET.
FOR JANUARY
Closing Stock ( 30% of $ 120000) = 36000 units
Add: Budgeted Sale ( Given) 102000 units
Less: Opening Stock ( Given ) 30600 units
Required Production 102000 units
UNITS TO PRODUCE IN JANUARY = 102000 unit
Q14) A variance that results from expected economic conditions that do not materialize is called Economic Variance.
Q15 ) A static budget is appropriate for fixed overhead costs.
Q16) If the activity level increases 10%, total variable costs will increase by 10%.
Q17)
High April 90000 miles $ 130000
Low Feb 50000 miles $ 80000
Variable cost per miles = Change in Total Cost / Change in miles
= $ (130000 - 80000) / (90000 - 50000)
= $ 50000 / 40000 miles = $ 1.25 per mile
Fixed Cost = $ 130000 - (90000 miles X $ 1.25 per mile) = $ 17500.
PARTICULARS A B C PRESENT VALUE OF CASHINFLOW (X) $ 100000 $ 100000 $ 60000 INITIAL INVESTMENT (Y) $ 110000 $ 90000 $ 50000 Profitibility Index ( X / Y) 0.909 1,11 1.20 RANK 3 2 1Related Questions
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