Question 1

BCD Corp. outsourced an order for shovel handles to RST Corp. because BCD could not fill the order.

By having RST produce the order, BCD was able to realize $10000 in sales profits that otherwise

would have been lost. The outsourcing cost added a cost of $1 .000, but BCD was ahead by $9000

when the order was completed. Which of the following statements is correct regarding BCD’s action?

Options :

A : The use of resource markets outside of BCD involves opportunity cost.

B : Accounting profit is total revenue minus explicit costs and implicit costs.

C : Implicit costs are not opportunity costs because they are internal costs.

D : Explicit costs are opportunity costs from purchasing shovel handles from a resource market.

Answer: A

Question 2

Calamity Cauliflower Corporation is considering undertaking a capital project. The company would

have to commit $24,000 of working capital in addition to an immediate outlay of $160,000 for new

equipment. The project is expected to generate $100.000 of annual income for 10 years. At the end

of that time, the new equipment, which will be depreciated on a straight-line basis, is expected to

Options :

A :

$100,000

B : $65,200

C : $60,000

D : $54,800

Answer: B

Question 3

A proposed investment is not expected to have any salvage value at the end of its 5-year life. Because

of realistic depreciation practices, the net carrying amount and the salvage value are equal at the end

of each year. For present value purposes, cash flows are assumed to occur at the end of each year.

The company uses a 12?ter-tax target rate of return.

The accounting rate of return based on the average investment is

Options :

A : 84.9%

B : 344%

C : 40.8%

D : 12%

Answer: B

Question 4

Decisions are frequently classified as those made under certainly and those made under uncertainly. Certainly exists when

Options :

A : The probability of the event is less than 1.

B : There is absolutely no doubt that an event will occur.

C : There is more than one outcome for each possible action.

D : There is risk involved.

Answer: B

Question 5

Flex Corporation is studying a capital acquisition proposal in which newly acquired assets will be

depreciated using the straight-line method. Which one of the following statements about the

proposal would be incorrect if a switch is made to the Modified Accelerated Cost Recovery System

(MACRS)?

Options :

A : The net present value will increase.

B : The internal rate of return will increase.

C : The payback period will be shortened.

D : The profitability index will decrease.

Answer: D

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