Miller's Is Considering a 2-Year Expansion Project That Will Require

question 59

Multiple Choice

Miller's is considering a 2-year expansion project that will require $398,000 up front.The project will produce cash flows of $361,000 and $114,000 for Years 1 and 2,respectively.Based on the profitability index (PI) rule,should the project be accepted if the discount rate is 12 percent? Should it be accepted if the discount rate is 17 percent?

• A)Yes; Yes,because the PI is 1.2
• B)Yes; No,because the PI is 0.98
• C)No; Yes,because the PI is 0.98
• D)No; No,because the PI is 1.2
• E)Yes; Yes,because the PI is 1.19

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Definitions:

Credit

The provision of resources, such as money, goods, or services, with the expectation of future repayment, often with interest.

Predetermined Overhead

An estimated overhead cost rate used to allocate overhead costs to products or services based on a planned activity level.

Direct Labour Cost

This refers to the total earnings (wages, salaries, benefits) paid to employees directly involved in the production of goods or services.

Sporting Equipment

Items and gear used in sports and physical activities to enhance performance or ensure safety.