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Advanced Management Accounting Questions 133–137 (page: 3)

A machine requires an initial investment of $500,000. The net present value (NPV) of the investment in the machine is $36,500.

Which of the following statements is correct in relation to the sensitivity of the investment?

Residual income is an appropriate performance measure for which type of responsibility centre?

Which of the following statements is true?

A product requires one each of three different components.

Faulty components are identified only at the end of the manufacturing process.

The following average fault rates have been identified:

Component A ­ 1 in 100

Component B ­ 1 in 20

Component C ­ 1 in 10

The probability that a unit of finished product contains no faulty components is:

The following calculation of the net present value (NPV) of a project has been produced.



By how much can the forecast revenue decrease before the project is not viable?