1. Dust Co has two division, A and B. Each division is currently considering the following separate projects:
Capital required for the project $32·6 million $22·2 million
Sales generated by project $14·4 million $8·8 million
Operating profit margin 30% 24%
Cost of capital 10% 10%
Current return on investment of division 15% 9%
If the residual income is used as the basis for the investment decision, which Division(s) would choose to invest in the project?
A Division A only
B Division B only
C Both Division A and Division B
D Neither Division A nor Division B
2. The following costs have been arisen in relation to the production of a product:
(i) Planning and concept design costs
(ii) Testing costs
(iii) Production costs
(iv) Distribution and customer service costs
In calculating the life cycle costs of a product, which of the above items would be included?
A (iii) only
B (i), (ii) and (iii) only
C (i), (ii) and (iv) only
D All of the above
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