Question

Expected future costs that differ between decision alternatives at hand are known as:

indirect costs.

sunk costs

relevant costs.

period costs.

prime costs.

Which of the following is not a property of the Payback Period Method for Capital Budgeting?

It explicitly recognizes the time value of money.

All the other four answers are properties of the Payback Period.

It is biased in favor of short term projects.

Managers find it easy to understand.

It is simple to compute and easy to understand.

Which of the following is not a Capital Budgeting Method?

Payback Period.

Internal rate of return.

Excess Present Value Index.

Present Value.

Accounting Rate of Return.

Pete’s Corner is a small card shop that rents space from a larger store. Sales Revenue is $40,000 for the period. Variable Expenses are $30,000 for the period. Fixed Expenses for the period are $7,500. The Breakeven Point in dollars before taxes would be:

$37,500.  

$10,000.

$30,000.

$7,500.

$2,500.

Answer 1

Solution 1:

Expected future costs that differ between decision alternatives at hand are known as "Relevant costs"

Hence 3rd option is correct.

Solution 2:

It explicitly recognizes the time value of money is not a property of the Payback Period Method for Capital Budgeting.

Hence first option is correct.

Solution 3:

Excess Present Value Index is not a captial budgeting method.

Hence 3rd option is correct.

Solution 4:

CM ratio = contribution margin / Sales = ($40,000 - $30,000) / $40,000 = 25%

Breakeven sales in dollars = Fixed costs / CM ratio = $7,500 / 25% = $30,000

Hence 3rd option is correct.