The Acme Class Ring Company Designs and Sells Two Types

question 65

Multiple Choice

The Acme Class Ring Company designs and sells two types of rings: the VIP and the SST. They can produce up to 24 rings each day using up to 60 total man-hours of labor. It takes 3 man-hours to make one VIP ring and 2
Man-hours to make one SST ring. How many of each type of ring should be made daily to maximize the
Company's profit, if the profit on a VIP ring is $40 and on an SST ring is $35?

• A) 18 VIP and 6 SST
• B) 20 VIP and 0 SST
• C) 0 VIP and 24 SST
• D) 12 VIP and 12 SST

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Definitions:

Risk Premium Approach

A method of calculating the required rate of return for an investment by adding a premium for the investment's risk to the risk-free rate of return.

Capital Budgeting

The process a business undergoes to evaluate potential major projects or investments, analyzing the expected cash flows to determine whether they meet a set investment criteria.

Capital Structure

The composition of a company's funding through a mix of debt, equity, and other financing sources to finance its operations and growth.

WACC

Weighted Average Cost of Capital, a calculation of a firm's cost of capital in which each category of capital is proportionately weighted.