Poulsen Industries Is Analyzing an Average-Risk Project, and the Following

question 36

Multiple Choice

Poulsen Industries is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise with inflation. The project should last for 3 years, it will be depreciated on a straight-line basis, and there will be no salvage value. No change in net operating working capital would be required. This is just one of many projects for the firm, so any losses on this project can be used to offset gains on other firm projects. The marketing manager does not think it is necessary to adjust for inflation since both the sales price and the variable costs will rise at the same rate, but the CFO thinks an inflation adjustment is required. What is the difference in the expected NPV if the inflation adjustment is made versus if it is not made?

• A) $12,018
• B) $12,650
• C) $13,316
• D) $13,982
• E) $14,681

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Definitions:

Functional Job Analysis

A method for analyzing jobs by identifying the tasks performed, the skills required, and the relationship of the job to other jobs.

Task-Analysis Inventory

A detailed examination and breakdown of tasks to understand their components, requirements, and processes, often used to improve efficiency or for job training.

Fleishman Job-Analysis

A method used to identify the abilities needed to perform a job effectively by assessing a range of job-related tasks.

Taxonomy

A system or method for classifying and organizing items or concepts into structured groups or categories.