The Winston Co

question 203

Multiple Choice

The Winston Co. is considering two mutually exclusive projects with the following cash flows. The crossover rate is _____ and if the required rate is higher than the crossover rate then project _____ should be accepted.

• A) 13.94 %; A
• B) 13.94 %; B
• C) 15.44 %; A
• D) 15.44 %; B
• E) 15.86 %; A

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Definitions:

Residual Income

Income that remains after all operating expenses, including cost of capital, are subtracted from revenue, often used in performance measurement.

Investment Center

A business segment whose manager has control over cost, revenue, and investments in operating assets.

Cost Center

A department or segment of a business to which costs can be allocated but does not directly generate revenue.

Profit Center

A segment or department within an organization that is directly responsible for generating profit, measured by its performance.