Q1. An alternative has the following cash flows: benefits = $60,000 per year, di

Question

Q1.

An alternative has the following cash flows: benefits = $60,000 per year,

disbenefits =$17,000 per year, and costs = $35,000 per year.

The Conventional B/C ratio is equal to:

a. 0.92

b. 0.96

c. 1.23

d. 2.00

Q2. A specified part can be obtained by either two methods. Method A will have a fixed cost of $40,000 per year and variable cost of $20 per unit. Method B will have fixed cost s of $60,000 per year and variable cost of $15 per unit. The number of unit that must be produced each year for the two methods to be equally attractive is:

a. 2,000

b. 4,000

c. 6,000

d. 8,000

Please explain me why you chose the answer!

Explanation / Answer

1. Conventional B/C ratio = ($60,000 - $17,000) / $35,000 = 1.23

2. b. 4,000

Explanation:

40,000 + 20x = 60,000 + 15x

     5x = 20,000

       x = 4,000 units per year

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