Figure 12-2

question 80

Multiple Choice

Figure 12-2. The manager of Stock Division projects the following for next year:
The manager can invest in an additional project that would require $40,000 investment in additional assets and would generate $6,000 of additional income.The company's minimum rate of return is 14%.
Refer to Figure 12-2.Which of the following statements is true?

• A)If the manager invests in the additional project,ROI of the division will decrease.
• B)The residual income of the project is less than the residual income of the division without the project; therefore the project will be rejected.
• C)Average investment for Stock Division will decrease if the project is accepted for investment.
• D)If the manager invests in the additional project,residual income of the division will increase.
• E)none of these.

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Definitions:

Independent Events

Two or more events whose outcomes do not affect each other, meaning the occurrence of one event does not change the probability of the other.

Probability

A measure of the likelihood that an event will occur, expressed as a number between 0 and 1, where 1 indicates certainty.

Marginal Probability

The probability of an event occurring, irrespective of the outcomes of other variables.

P(A or B)

The probability that at least one of two events A or B occurs.