As the Winning Contestant in a Television Game Show,you Are

question 27

Multiple Choice

As the winning contestant in a television game show,you are considering the prizes to be awarded.You must indicate to the sponsor which of the following two choices you prefer,assuming you want to maximize your wealth.Assume it is now January 1,and there is no danger whatever that the sponsor won't pay off. (1) $1,000 now and another $1,000 at the beginning of each of the 11 subsequent months during the remainder of the year,to be deposited in an account paying 12 percent simple annual rate,but compounded monthly (to be left on deposit for the year) .
(2) $12,750 at the end of the year.
Which one would you choose?

• A) Choice 1
• B) Choice 2
• C) Choice 1,if the payments were made at the end of the year.
• D) The choice would depend on how soon you need the money.
• E) Either one,since they have the same present value.

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Definitions:

Inventories

Assets held for sale in the ordinary course of business, or goods in the production process or materials to be consumed in the production process or in the rendering of services.

Historical Data

Data from past periods, used for analysis, forecasting, or research to understand trends, patterns, or outcomes.

Mature Production Process

Indicates a manufacturing or production process that has reached a stage of optimization and efficiency through experience and adaptation.

Standard Costing System

An accounting system that assigns fixed costs to products based on standard assumptions about the production process.