Reference no: EM133046633

Question 1 - Mickey Tire Company makes a special kind of racing tire. Variable costs are $230 per unit, and fixed costs are $20,000 per month. Mickey sells 300 units per month at a sales price of $350. If the quality of the tire is upgraded, the company believes it can increase the sales price to $380. If so, the variable cost will increase to $250 per unit, and the fixed costs will rise by 15%. If Mickey decides to upgrade, how will operating income be affected?

A. Operating income will decrease by $3,000.

B. Operating income will increase by $6,000.

C. Operating income will decrease by $6,000.

D. Operating income will remain the same

Question 2 - Jones Manufacturing Co. is considering investing in specialized equipment costing $940,000. The equipment has a useful life of four years and a residual value of $10,000. Depreciation is calculated using the straight-line method. The expected net cash inflows are expected to be $310,000 per year. What is the ARR of the investment?

A. 16.32?%

B. 15.96?%

C. 16.49?%

D. 15.79?%

Question 3 -  A company produces 1,000 packages of dog treats per month. The sales price is $5 per pack. Variable cost is $1.50 per unit, and fixed costs are $1,700 per month. Management is considering adding a vitamin supplement to improve the value of the product. The variable cost will increase from $1.50 to $1.70 per unit, and fixed costs will increase by 10%. At what sales price for the new product will the two alternatives (sell as is or process further) produce the same operating income? (Round your answer to the nearest cent.)

A. $5.00

B. $3.57

C. $1.80

D. $5.37