You Are Analyzing a Project and Have Prepared the Following

question 78

Multiple Choice

You are analyzing a project and have prepared the following data: $$\begin{array} { | l | l | } \hline \text { Year } & \text { Cad Flow } \\\hline 0 & -£ 169,000 \\\hline 1 & £ 46,200 \\\hline 2 & £ 87,300 \\\hline 3 & £41,000 \\\hline 4 & £ 39,000 \\\hline\end{array}$$ Required payback period: 2.5 years
Required AAR: 7.25%
Required return: 8.50%
Based on the profitability index of _____ for this project,you should _____ the project.

• A).97; accept
• B)1.05; accept
• C)1.18; accept
• D).97; reject
• E)1.05; reject

---

Definitions:

Materials Price Variance

The difference between the actual cost of raw materials used in production and the expected (or standard) cost of those materials.

Raw Materials Quantity

The amount or volume of raw materials required or used in the production process, often measured to assess inventory needs and costs.

Variance

The difference between planned or expected performance and the actual outcome.

Occupancy Expenses

Expenses associated with the use of a physical location, including lease payments, utility bills, and taxes on the property.