Question

22. Variable costing is also called ________.

A) functional costing

B) indirect costing

C) absorption costing

D) the contribution approach

Answer:

23. What is gross margin?

A) sales minus operating expenses

B) sales minus other expenses

C) sales minus cost of goods sold

D) sales plus other income

Answer:

24. If the net present value of an investment project is positive, then the project is ________. If the net present value of an investment project is negative, then the project is ________.

A) ignored; accepted

B) desirable; undesirable

C) unacceptable; acceptable

D) rejected; accepted

Answer:

25. An investment of $42,000 is expected to generate the following annual cash flows:

Year 1                     $10,000

Year 2                     $15,000

Year 3                     $15,000

Year 4                     $12,000

Assume straight-line depreciation is used. Ignore income taxes. What is the payback period?

A) 3 years

B) 3.17 years

C) 3.83 years

D) 4 years

Answer:

26. The internal rate of return model determines the ________ at which the net present value of an investment project equals ________.

A) cost of capital; a positive number

B) hurdle rate; a positive number

C) interest rate; zero

D) discount rate; a positive number

Answer:  

Answer 1

22

Variable costing is also called the contribution approach

Option D is correct

23

Gross margin is sales minus cost of goods sold

Option C is correct

24

If the net present value of an investment project is positive, then the project is desirable

If the net present value of an investment project is negative, then the project is undesirable

Option B is correct

25

Accumulated cash flows for 3 years = 10000+15000+15000 = $40000

Investment cost not recovered in Year 4 = 42000-40000 = 2000

Payback period = 3+(2000/12000)= 3.17 years

Option B is correct

26

The internal rate of return model determines the interest rate at which the net present value of an investment project equals zero

Option C is correct