Question : 53. The primary difficulty in the allocation of overhead costs to : 1284610

53. The primary difficulty in the allocation of overhead costs to prospective projects is that the: 
A. allocation will reduce the project’s NPV.
B. discount rate is unknown.
C. costs may not represent an incremental expense.
D. expenses may have been previously allocated.

54. Assume that sales revenues are increasing more rapidly than product costs, but that a project’s cash flows have been represented as an annuity when calculating NPV. Which of the following problems may occur? 
A. Nominal cash flows are possibly being discounted with a real rate.
B. Real cash flows are possibly being discounted with a nominal rate.
C. Nominal cash flows are possibly being discounted with a nominal rate.
D. Real cash flows are possibly being discounted with a real rate.

55. A project anticipates net cash flows of $10,000 at the end of year 1, with such amount growing at the expected 5% rate of inflation over the subsequent 4 years. Calculate the real present value of this 5-year cash stream if the firm employs a nominal discount rate of 15%. 
A. $33,522
B. $38,377
C. $43,294
D. $55,000

56. An investment today of $25,000 promises to return $10,000 annually for the next 3 years. What is the approximate real rate of return on this investment if inflation averages 6% annually during the period? 
A. 3.5%
B. 9.7%
C. 14.0%
D. 20.0%

57. What nominal annual return is required on an investment for an investor to experience a 12% gain in purchasing power? Assume inflation to be 4%. 
A. 7.69%
B. 9.29%
C. 12.00%
D. 16.48%

58. Which of the following costs probably should not be allocated to the investment needed for a new project? 
A. Increase in accounts receivable
B. New warehouse, built for this project
C. 25% of the Vice President’s salary
D. Labor expense for employees in new warehouse

59. A parcel of corporate land was recently dedicated as the new plant site. What cost allocation should the land receive, based on the following: original cost of $200,000, market value of $300,000, net book value of $200,000, a recent offer to purchase for $250,000. 
A. $200,000
B. $250,000
C. $275,000
D. $300,000

60. New projects or products can have an indirect effect on the firm as well as a direct effect. Which of the following appears to be an indirect effect of launching a new product? 
A. Additional working capital is required.
B. Sales force will need to be increased.
C. Sales of a similar product of your firm’s will decline.
D. Additional machinery must be purchased.

61. New projects or products can provide positive indirect effects as well as negative effects. Which of the following appears to be a positive indirect effect? 
A. The new, efficient machine uses less electricity.
B. Orders of your complementary products increase.
C. The project has a positive NPV.
D. Accelerated methods of depreciation can be used.

62. Opportunity costs for organizational resources: 
A. are limited to the explicit cash flows involved.
B. are determined according to the marginal tax rate.
C. can involve no cash flows.
D. should not be determined for existing products.