The Paper Euphoria Co

question 12

Multiple Choice

The Paper Euphoria Co. (PEC) has received several similar new machine investment proposals from its branches across Canada. In general the data are: cost of the new machine is $200,000; residual value after five years is $40,000; economic life is 10 years; average annual profit before depreciation is $48,000. PEC only uses the ARR to measure investment success and requires an ARR of at least 27.5%. Which of the following actions would result in the project being accepted by PEC?

• A) Changing nothing from the data given and accepting the investment as is.
• B) Giving away the machine after ten years instead of selling it.
• C) Using the machine for seven years instead of 10.
• D) Paying only $199,000 for the new machine instead of $200,000.
• E) Increasing annual profit before depreciation to 48,500 instead of $48,000.

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Definitions:

Value-Based Management

A management approach that ensures corporations are run consistently on value-based principles to maximize shareholder value over time.

Relevance

The degree to which something is related or useful to the matter at hand.

Value-Based Management

A management approach focusing on creating value for shareholders and maximizing company performance.

Nonsupervisory Personnel

Employees who are not responsible for overseeing the work of others and typically focus on specific tasks or operations within an organization.