Suppose a Manager Is Deciding Whether or Not to Purchase

question 31

Multiple Choice

Suppose a manager is deciding whether or not to purchase a piece of equipment to make an input internally and has completed the majority of the net present value (NPV) calculations. The manager has correctly calculated the NPV to be equal to: NPV = ($1.052 × Q) - $250,000, where Q is the annual quantity of the input the firm needs. In order for the NPV to be positive, the firm needs at least _______units of the input each year.

• A)220,890
• B)237,643
• C)115,960
• D)259,600

Describe the principle of conservatism in accounting.

Understand the conditions under which companies can change accounting methods.

Comprehend the benefits and criticisms of fair value accounting.

Identify the origin and purpose of accounting standards codification.

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Definitions:

Accounting Break-even Quantity

The number of units that must be sold to cover all costs, both fixed and variable, with no profit or loss.

Variable Costs

Outgoings that are contingent upon the scale of production operations.

Fixed Costs

These are expenses that do not change with the level of production or sales, such as rent, salaries, and insurance premiums.

Required Return

The minimum rate of return an investor expects to achieve by investing in a particular asset.