Using the Original Design, a Machine Requires 12 Hours of Setup

question 175

Multiple Choice

Using the original design, a machine requires 12 hours of setup time. By redesigning the machine, the setup time is reduced by 25%. The cost per setup hour is $225. Calculate the reduction in nonvalue-added cost per setup.

• A) $675 per setup
• B) $225 per setup
• C) $450 per setup
• D) $800 per setup
• E) $2,025

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Definitions:

Risk-Adjusted Discount Rate

A discount rate that adjusts for the risk of the cash flows, giving a more accurate present value estimate.

Market Return

The total return on investment, including dividends and capital gains, from holding a market portfolio.

Nondiversifiable Risk

A type of risk that affects all investments across the market and cannot be eliminated through diversification.

Diversifiable Risk

A type of investment risk that can be reduced or eliminated in a portfolio through diversification, as it is not correlated with market movements.