A Financial Manager Must Choose Between Four Alternative Investments, 1

question 134

Multiple Choice

A financial manager must choose between four alternative investments, 1, 2, 3, and 4. Each asset is expected to provide earnings over a three-year period as described below. $\begin{array}{rrrr}\text { Asset }&\text { Year } 1&\text { Year } 2&\text { Year } 3\\1 & \$ 21,000 & \$ 15,000 & \$ 9,000 \\2 & 9,000 & 15,000 & 21,000 \\3 & 3,000 & 18,000 & 19,000 \\4 & 6,000 & 12,000 & 12,000\end{array}$ Based on the profit maximization goal, the financial manager would choose

• A) Asset 1.
• B) Asset 2.
• C) Asset 3.
• D) Asset 4.

Understand the distinction between nominal and real rates of return and their impact on investment appraisals.

Understand the concept of fixed and variable costs and their implications on production decision-making.

Calculate the crossover point between two different production processes or machines.

Analyze the cost effectiveness of process configuration options for different levels of output.

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Definitions:

Equity Investment Transactions

Financial activities involving the buying and selling of stock or ownership stakes in a company.

Fair Value Method

An accounting approach used to measure and report the actual or estimated market value of an asset or liability at the present time.

Equity Method

An accounting technique used to record investments in which the investor has significant influence over the investee but does not control it.

Dividends

Money distributed by a corporation to its members, sharing a part of the company's income.