What Is the Best Approach to Take into Account the Relative

question 11

Multiple Choice

What is the best approach to take into account the relative risk of a proposed project?

• A)adjusting the discount rate upward if the project is judged to have above-average risk
• B)reducing the NPV by 10% for risky projects
• C)picking a risk factor equal to the average discount rate
• D)ignoring risk because project risk cannot be measured accurately

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Definitions:

Single Plantwide Factory Overhead Rate

A method of allocating total factory overhead costs to units produced, using a single rate for the entire manufacturing plant.

Labor-Intensive Department

A department within a company that relies more on human labor than on machinery or automation to produce goods or provide services.

Capital-Intensive Department

A division within a company that requires a large investment in capital assets relative to its labor cost.

Single Plantwide Factory Overhead Rate

A method of allocating total factory overhead to products based on a single rate, often using total direct labor hours or machine hours.