Use the provided conditions
The budget question assumes independent whole projects and additive NPVs. The displaced-sales question uses a stated pretax cash contribution. The supplied-value question distinguishes gross PV from an already net NPV.
Explain the model before choosing
Identify the feasible set, the amount definition or the affected baseline activity. The feedback below explains every alternative so a calculation error can lead to the appropriate deeper resource.
Try the questions
Budget is 100. Independent whole projects have cost/NPV pairs A 60/40, B 50/32 and C 50/32. Which feasible set has the highest total entered NPV?
- A.
A only
- B.
B and C
- C.
All three
Answer and explanation
Answer: B
Enumerate feasible whole-project combinations rather than assuming ratio order is optimal.
- A
A has the highest ratio but total value 40; its unused 40 cannot fund B or C.
- B
They fit the budget exactly and have total NPV 64.
- C
Their total cost 160 exceeds the budget.
A proposal displaces receipts of 100 but avoids related variable cash costs of 60. What is the stated pretax operating cash effect?
- A.
−100
- B.
−40
- C.
+60
Answer and explanation
Answer: B
Use the net contribution effect under the stated boundary, with tax and balance effects evaluated separately.
- A
This ignores the avoided cash cost.
- B
Lost receipts −100 plus avoided costs +60 gives −40.
- C
Avoided costs alone omit the lost receipts.
A supplied project NPV of 15 already includes initial investment of 10. Should 10 be subtracted again?
- A.
Yes, to get 5
- B.
No, it is already included
- C.
Add the outlay to obtain 25 as NPV
Answer and explanation
Answer: B
Read the imported amount’s definition before combining it with another figure.
- A
That would be appropriate for gross PV 15, not the already net NPV described.
- B
Subtracting an included outlay again double counts it.
- C
This changes the supplied net measure rather than preserving its definition.