美国注册会计师考试真题-BEC-28

2014 AICPA Newly Released Questions – Business

28. CPA-08368

A company has a required rate of return of 15% for five potential projects. The company has a maximum of $500,000 available for investment and cannot raise any capital. Details about the five projects are as follows:

Project Initial outlay Net present value at 15%Internal rate of return

1 $500,000 $125,000 23%

2 250,000 75,000 17%

3 150,000 25,000 35%

4 100,000 50,000 25%

5 150,000 50,000 25%

The company should choose which of the following projects?

a. Project 1 only.

b. Projects 2, 3, and 4 only.

c. Projects 2, 4, and 5 only.

d. Projects 3, 4, and 5 only.

AICPA Difficulty Rating: DIFFICULT

Question Title: AICPA Newly Released 2014

Lecture to be assigned to: B3

Topic to be assigned to: 1

Page reference (page # and outline point): pg. 14, G.

ANSWER:

Choice "c" is correct. With a maximum amount of $500,000, the company can only choose projects whose initial outflows do not (when summed) exceed $500,000. Within that parameter, the company must choose the combination of projects that maximize the total net present value. Projects 2, 4, and 5 have a combined outlay of $500,000. In addition, the combined net present value for the three projects is $175,000 ($75,000 + $50,000 + $50,000), which is the highest of all choices given. Choice "a" is incorrect. Project 1 does meet the maximum outlay of $500,000, but the net present value of $125,000 falls below the combination of projects 2, 4, and 5.

Choice "b" is incorrect. Projects 2, 3, and 4 meet the maximum outlay of $500,000, but the net present value of $150,000 ($75,000 + $25,000 + $50,000) falls below the combination of projects 2, 4, and 5.

Choice "d" is incorrect. Projects 3, 4, and 5 fall below the maximum outlay, which implies the company has more money to spend that may generate positive net present value. In addition, the combined net present value of $125,000 makes it less desirable than the combination of projects 2, 4, and 5.