Victoria, Your Boss, Insists That Only Projects That Can Return

question 27

Multiple Choice

$$\begin{array}{l}\text { You would like to invest in the following project. }\\\begin{array} { | l | l | } \hline \text { Year } & \text { Cash Flow } \\\hline 0 & - £ 55,000 \\\hline 1 & £ 30,000 \\\hline 2 & £ 37,000 \\\hline\end{array}\end{array}$$ Victoria, your boss, insists that only projects that can return at least £1.10 in today's dollars for every £1 invested can be accepted.She also insists on applying a 10% discount rate to all cash flows.
Based on these criteria, you should:

• A)accept the project because it returns almost £1.22 for every £1 invested.
• B)accept the project because it has a positive PI.
• C)accept the project because the NPV is £2,851.
• D)reject the project because the PI is 1.05.
• E)reject the project because the IRR exceeds 10% .

---

Definitions:

Ending Work in Process

The value of goods that are in the process of being manufactured but are not yet complete at the end of an accounting period.

Materials

Refers to the raw inputs, supplies, or components used in the manufacturing or production process to create finished goods.

Unit Conversion Cost

The cost incurred to transform raw materials into finished goods on a per unit basis, including both direct labor costs and manufacturing overhead.

Materials Cost

The total expense incurred for materials that are used in the production of goods or services.