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6.A project profitability index greater than zero for a project

Resolved Question:

6.A project profitability index greater than zero for a project indicates that

A. the company should reevaluate its discount rate.
B. the project is unattractive and shouldn't be pursued.
C. there has been a calculation error.
D. the discount rate is less than the internal rate of return.

7.Use the following information to answer this question.

Financial statements for Larkins Company appear below:

Larkins Company
Statement of Financial Position
December 31, Year 2 and Year 1
(dollars in thousands)

Year 2 Year 1
Current assets:
Cash and marketable securities
Accounts receivable, net
Inventory
Prepaid expenses
Total current assets
Noncurrent assets:
Plant & equipment, net
$180
210
130
50
570

1,540
$180
180
120
50
530

1,480
Total assets $2,110 $2,010

Current liabilities:
Accounts payable
Accrued liabilities
Notes payable, short term
Total current liabilities
Noncurrent liabilities:
Bonds payable
Total liabilities
Stockholders' equity:
Preferred stock, $20 par, 10%
Common stock, $10 par
Additional paid-in capital--common stock
Retained earnings
Total stockholders' equity
Total liabilities & stockholders' equity
$100
60
90
250

480
730

120
180
240
840
1,380
$2,110
$130
60
120
310

500
810

120
180
240
660
1,200
$2,010

Larkins Company
Income Statement
For the Year Ended December 31, Year 2
(dollars in thousands)

Sales (all on account)
Cost of goods sold
Gross margin
Selling and administrative expense
Net operating income
Interest expense
Net income before taxes
Income taxes (30%)
Net income $2,760
1,930
830
330
500
50
450
135
$315





Dividends during Year 2 totaled $135 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, Year 2 was $150.


7. Larkins Company's return on common stockholders' equity for Year 2 was closest to:

A. 26.9%.
B. 24.4%.
C. 23.5%.
D. 25.9%.

8. Kava Inc. manufactures industrial components. One of its products, which is used in the construction of industrial air conditioners, is known as K65. Data concerning this product are given below:


Per Unit
Selling price

$180
Direct materials

$29
Direct labor

$5
Variable manufacturing overhead

$4
Fixed manufacturing overhead

$21
Variable selling expense

$2
Fixed selling and administrative expense

$17

The above per unit data are based on annual production of 4,000 units of the component. Direct labor can be considered to be a variable cost. (Source: CMA, adapted)
The company has received a special, one-time-only order for 500 units of component K65. There would be no variable selling expense on this special order, and the total fixed manufacturing overhead and fixed selling and administrative expenses of the company wouldn't be affected by the order. Assuming that Kava has excess capacity and can fill the order without cutting back on the production of any product, what is the minimum price per unit on the special order below which the company shouldn't go?

A. $78
B. $180
C. $59
D. $38

9.Ignore income taxes in this problem.) Purvell Company has just acquired a new machine. Data on the machine follow:

Purchase cost

$50,000
Annual cost savings

$15,000
Life of the machine

8 years

The company uses straight-line depreciation and a $5,000 salvage value. (The company considers salvage value in making depreciation deductions.) Assume cash flows occur uniformly throughout a year.

The simple rate of return would be closest to

A. 12.5%.
B. 17.5%.
C. 30.0%.
D. 18.75%.

10.Centerville Company's debt-to-equity ratio is 0.60 Total assets are $320,000, current assets are $170,000, and working capital is $80,000. Centerville's long-term liabilities must be

A. $90,000.
B. $30,000.
C. $80,000.
D. $120,000.
Submitted: 6 years ago.
Category: Business and Finance Homework
Expert:  Neo replied 6 years ago.
Good day!

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Customer: replied 6 years ago.
Thank you