P2 Exam Dumps : Advanced Management Accounting

A very large organization is financed by both debt and equity. It evaluates all projects on the basis of their net present value (NPV) using an organization wide weighted average cost of capital as the discount rate.

For a small project, which TWO of the following would affect the project's cash flows AND the discount rate?

IOP's product is manufactured using a production process that is known to have a defect rate of 10%.

IOP's quality control department has developed a test that has a 98% probability of classifying a non-defective item correctly and a 2% probability of classifying a non-defective item as defective.

The same test has a 95% probability of classifying a defective item correctly and a 5% probability of classifying a defective item as non-defective.

Calculate the proportion of IOP's output that will be classified as non-defective by the quality control department's test.

Give your answer to one decimal place.

Which TWO of the following expressions are correct?