Please Refer to the Following Data Concerning 4 Investment Alternatives

question 41

Multiple Choice

Please refer to the following data concerning 4 investment alternatives:
$\begin{array}{|l|r|r|r|r}\hline & \text { Praject A } & { \text { Praject B } } & { \text { Praject C } } & { \text { Praject D } } \\ \hline \text { Initial investment } & \$ 210,000 & \$ 400,000 & \$ 550,000 & \$ 1,000,000 \\\hline \text { PV of cash } \\\text { Inflows } & \$ 285,000 & \$ 490,000 & \$ 800,000 & \$ 990,000 \\\hline \text { Payback period } & \\\text { (years) } & 7.2 & 6.0 & 9.5 & 2.0 \\\hline \text { NPV of project } & \$ 75,000 & \$ 90,000 & \$ 250,000 & (\$ 10,000 \\\hline\end{array}$


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Which project has the highest profitability index?

• A) Project A
• B) Project B
• C) Project C
• D) Project D

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Definitions:

Finished Goods

Products that have completed the manufacturing process but have not yet been sold or distributed to the end user.

Indirect Materials

Materials used in the production process that are not directly traceable to individual products or are not cost-effective to trace, such as lubricants and cleaning supplies.

Manufacturing Overhead

All indirect costs associated with the production process, such as utilities and maintenance expenses.

Overapplied

A term used when the estimated costs, such as overhead, allocated to a product or project exceed the actual costs incurred.