Question

I. Cables Electronics Corporation has developed a new instrument—model XG-75—that has been designed to outperform a competitor’s best-selling instrument. Model XG-75 has a useful life of 60,000 hours of service and its operating cost is $3.70 per hour. In contrast, the competitor’s product has a useful life of 30,000 hours of service and has operating costs that average $7.10 per hour. The competitor’s instrument sells for $168,000. Cables has not yet established a selling price for model XG-75. From a value-based pricing standpoint what is the reference value that Cables should consider when pricing model XG-75? Multiple Choice • $381,000 • $372,000 • $483,000 • $168,000

2. Trovato Corporation is considering a project that would require an investment of $71,000. No other cash outflows would be involved. The present value of the cash inflows would be $95,140. The profitability index of the project is closest to (Ignore income taxes.): Multiple Choice • 0.66 • 0.34 • 1.34 • 0.25

3. The following data pertain to an investment proposal (Ignore income taxes.): Cost of the investment $ 58,000 Annual cost savings $ 16,000 Estimated salvage value $ 8,000 Life of the project 5 years Discount rate 11 % ________________________________________ Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using the tables provided. The net present value of the proposed investment is closest to: (Round your intermediate calculations and final answer to the nearest whole dollar amount.) Multiple Choice • $5,880 • $1,136 • $4,744 • $34,000

Answer 1