The Manager of Stock Division Projects the Following for Next

question 17

Multiple Choice

The manager of Stock Division projects the following for next year:

The manager can invest in an additional project that would require $40,000 investment in additional assets and would generate $6,000 of additional income.
-The company's minimum rate of return is 14%.Which of the following statements is true?

• A) If the manager invests in the additional project, ROI of the division will decrease.
• B) The residual income of the project is less than the residual income of the division without the project; therefore the project will be rejected.
• C) Average investment for Stock Division will decrease if the project is accepted for investment.
• D) If the manager invests in the additional project, residual income of the division will increase.
• E) None of these.

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Definitions:

Medium of Exchange

A go-between resource or framework designed to support the transfer, acquisition, or exchange of commodities among participants.

Opportunity Cost

The cost of foregoing the next best alternative when making a decision.

Foregone Interest

The potential interest income lost by choosing an alternative investment or spending decision instead of the present option that yields interest.

FDIC Insurance

A federal guarantee of safety for depositor funds in member banks, up to a defined limit.