Heilmann Corporation Would Like to Determine the Relative Profitability of a Number

question 50

Multiple Choice

Heilmann Corporation would like to determine the relative profitability of a number of jobs.For example,job S96T has revenues of $68,000 and avoidable costs of $54,400,resulting in an incremental profit of $13,600.The job requires 170 hours of the constrained resource.The job is responsible for 10% of the company's total profit for the period.What is the profitability index for job S96T?

• A)0.20
• B)$400 per hour
• C)$80 per hour
• D)0.10

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Definitions:

Cost of Equity

The return a company requires to decide if an investment meets capital return requirements, often used to assess the cost of funding projects.

Pre-Tax Cost

The expense incurred by a company or individual before taxes are deducted.

Levered Value

The value of an investment or company including debt, reflecting its total worth in a leveraged state.

Cost of Equity

The rate of return that a company must generate on equity-financed projects to retain its market value, reflecting the compensation investors expect for their risk.