Black Productions Has Three Models: D,E,and F

question 204

Multiple Choice

Black Productions has three models: D,E,and F.The following information is available:

Black Productions is thinking of discontinuing model F because it is reporting an operating loss.All fixed costs are unavoidable.Assume Black Productions is able to increase the sales revenue of product F to $35,000 with no change in volume of units sold and no change in variable costs or fixed costs.What effect will this have on operating income?

• A)Increase $11,000
• B)Increase $24,000
• C)Decrease $11,000
• D)Decrease $24,000

---

Definitions:

Cost Of Capital

The rate of return required by a capital provider—debt or equity—for investing in a company.

Crossover Rate

Crossover Rate is the point at which two or more investment alternatives have the same net present value, used in capital budgeting to compare the desirability of projects.

WACC

A firm’s capital expenses are determined through the Weighted Average Cost of Capital, which proportionally weighs each category of capital.

NPV

Net Present Value - a financial metric used to evaluate the profitability of an investment or project, taking into account the time value of money by discounting future cash flows.