Question

33. Compute the number of units that must be sold in order to have zero profit when fixed costs are $810,000 and unit contribution margin is $90.

a.6,810 units

b.9,000 units

c.8,100 units

d.6,500 units

38. The expected average rate of return for a proposed investment of $900,000 in a fixed asset, with a useful life of five years, recognition is given to the effect of straight-line depreciation on the investment, no residual value, and an expected total net income of $360,000 for the 5 years, is:

a.40%.

b.16%.

c.18.5%.

d.12.5%.

39. The management of London Corporation is considering the purchase of a new machine costing $750,000. The company's desired rate of return is 6%. The present value factors for $1 at compound interest of 6% for 1 through 5 years are 0.943, 0.890, 0.840, 0.792, and 0.747, respectively. In addition to this information, use the following data in determining the acceptability in this situation:

Year	Income from Operations		Net Cash Flow
1	$37,500		$187,500
2	37,500		187,500
3	37,500		187,500
4	37,500		187,500
5	37,500		187,500

The average rate of return for this investment is:

a.10%.

b.25%.

c.15%.

d.5%.

Answer 1

Answer 33. b.9,000 units

Explanation : Fixed Costs / Contribution per unit = $810,000 / $90 = 9,000 units.

Answer 34 . b.16%

Explanation :

Estimated Avg. Annual Income = $360,000 / 5 years = $72,000

Average Investments = $900,000 / 2 = $450,000

Expected average rate of return = Estimated Avg. Annual Income / Average Investments

= $72,000 / $450,000 = 16 %

Answer 35. a.10%

Avg. Income from Operations = $37,500

Average Investments = $750,000 / 2 = $375,000

Average rate of return = $37,500 / $375,000 = 10 %