Use the Following Information for the Next 2 Questions

question 126

Multiple Choice

Use the following information for the next 2 questions.
Division A produces a component for Hielkema Company's main product - automobiles. The division operates as a profit center. It also sells to outsiders. The present selling price is $75 per component. The company buys 600,000 units of a similar component per year from outside sources. The external purchase price is $73 as a result of a quantity discount. Division A has adequate capacity to supply the needs of the Assembly division. The following data are for Division A:
-The minimum price at which A would sell components internally is

• A) $71
• B) $73
• C) $75
• D) $65

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Definitions:

Present Value

A calculation that determines the current value of a future amount of money or stream of cash flows given a specified rate of return.

Annual Cash Flows

The total amount of money being transferred into and out of a business over one year, considered in terms of liquidity and financial health.

Geothermal Heat Pump

A central heating and/or cooling system that transfers heat to or from the ground, using the earth as a heat source or sink.

Net Present Value

A financial metric that estimates the profitability of an investment or project by calculating the difference between the present value of cash inflows and outflows over a period of time.