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United Industries manufactures three products at its highly automated factory. The products are very popular, with demand far exceeding the company's abilitqto supply the marketplace. To maximize profit, management should focus on each product
Suggested Answer: B
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The cash flows of Plan A are discounted at 12%, the company's cost of capital for average risk projects. Plan B is evaluated with a lower cost of capital that reflects a greater risk of the cash outflow of the project. Thus, the cash flows of Plan B are discounted at 10% (12% --- 2%). the company's adjusted cost of capital for high risk projects. The net present value of each plan is the initial cost plus the present value of an annuity for 10 years at the appropriate rate multiplied times the annual operating cost.
The present value factors are found in the tools section of CMA Test Prep.
Plan A NPV = $10,000,000 + ($1,000,000 x 5.650)
Plan A NPV = $15,650,000
Plan B NPV = $5,000,000 + ($2,000,000 x 6.145)
Plan B NPV = $17,290,000
Plan A has a lower NPV and thus is the better project.
48 comments · newest first
KA
Karima
10 months ago
I’m surprised they’re not focusing on contribution margin ratio!
GI
Giovanna
11 months ago
Gross margin is important, but not the only factor.
FI
Fidelia
11 months ago
Wait, contribution margin per machine hour? Really?
LA
Lavonna
11 months ago
Totally agree, segment margin makes sense here!
LE
Leanora
11 months ago
Segment margin is key for product profitability.
HA
Hassie
12 months ago
I feel like contribution margin ratio could be important too, but I need to double-check how it relates to maximizing profit in a constrained environment.
PH
Phillip
12 months ago
Contribution margin per machine hour seems relevant, especially since they have a highly automated factory. I might lean towards that option.
AU
Audra
12 months ago
I remember a practice question where segment margin was emphasized, but I'm not convinced it applies here since they have excess demand.
JO
Jovita
1 year ago
I think focusing on gross margin makes sense, but I'm not entirely sure if it's the best measure for maximizing profit in this case.
JA
Jamika
1 year ago
I'm a little confused by all these margin concepts. Gross margin, segment margin, contribution margin - it's a lot to keep track of! I'll just go with my gut and choose contribution margin ratio. Seems like a safe bet.
SH
Shad
1 year ago
Okay, I've got this. The key is to focus on the most profitable product, so I'll go with contribution margin per machine hour. That way, I can see which product generates the highest profit per unit of the scarce resource (machine time).
BA
Basilia
1 year ago
Hmm, I'm a bit unsure about this one. I know contribution margin is important, but I'm not sure if I should focus on the ratio or the per-machine-hour metric. Let me think this through carefully.
BR
Brett
1 year ago
This seems like a straightforward question about maximizing profit. I think I'll go with contribution margin per machine hour, since that directly measures the profitability of each product.
CA
Cary
1 year ago
Okay, let's think this through. The query is using the $text operator, which means it's searching the text index on the "quote" field. So the documents that contain the phrase "fact find" should be returned.
KR
Kris
1 year ago
Hmm, I'm a bit confused on the difference between installing an app and adding the flow to the utility bar. Are those both valid ways to display the screen flow?
VI
Vivienne
1 year ago
I think creating a shared key for both services is a solid approach, but I'm not entirely sure if that's the best way to ensure privacy.
DA
Darrin
1 year ago
I thought it was mainly vManage or DNS records, but now I'm not so certain.
CH
Chandra
1 year ago
Wait, did I just see a typo in the question? 'abilitqto'? Yikes, these test writers need to proofread a bit more carefully.
SI
Silvana
1 year ago
D) Contribution margin per machine hour.
DO
Donte
1 year ago
C) Contribution margin ratio.
CL
Clare
1 year ago
B) Segment margin.
BO
Boris
1 year ago
A) Gross margin.
CO
Cortney
1 year ago
Contribution margin per machine hour? Sounds like they're trying to get us to think about productivity, but I still think C is the way to go.
MA
Malcolm
1 year ago
True, but overall, focusing on contribution margin ratio seems like the most comprehensive approach.
LO
Louvenia
1 year ago
But D could also be important to consider, it relates directly to our production efficiency.
TA
Tayna
1 year ago
I think C is the best option, it gives us a ratio to work with.
HI
Hildegarde
1 year ago
Ah, good old segment margin. Trying to trick us with that one, are they? Nah, I'm going with C.
MA
Margart
1 year ago
Let's consider all the options before making a decision.
VO
Vonda
1 year ago
I see where you're coming from, but I still think C is the way to go.
EL
Elvis
1 year ago
Let's consider all the factors before making a decision.
AR
Arleen
1 year ago
I see your point, but I still think C is the best option.
SY
Sylvie
1 year ago
I think segment margin is important too, but I'm leaning towards D.
EV
Evelynn
1 year ago
I think segment margin is important too, but I'm leaning towards D.
JA
Jarvis
1 year ago
Gross margin? Really? That's not the same as contribution margin, which is what they should be looking at here.
WI
William
1 year ago
Agreed, that's where they will see the most profit.
AL
Alline
1 year ago
Exactly, they need to focus on maximizing contribution margin.
KI
Kip
1 year ago
Contribution margin is the key here.
AU
Audra
1 year ago
D) Contribution margin per machine hour.
JE
Jessenia
1 year ago
C) Contribution margin ratio.
DA
Daren
1 year ago
B) Segment margin.
TH
Thaddeus
1 year ago
A) Gross margin.
CH
Chantay
1 year ago
I believe segment margin is crucial for making the right decisions.
KR
Kristofer
1 year ago
D seems like the right answer to me. Contribution margin per machine hour will help them prioritize the most efficient products.
CA
Carman
1 year ago
I think C could also be important to consider the overall contribution margin ratio.
ER
Ernest
1 year ago
I agree, D is the best option to focus on efficiency.
TE
Tenesha
2 years ago
Hmm, I think the answer is C - Contribution margin ratio. That's the best way to maximize profit by focusing on the product with the highest contribution margin.
SO
Sommer
2 years ago
I agree with Sherita, gross margin is important for maximizing profit.
SH
Sherita
2 years ago
I think we should focus on gross margin.