Byron Corp Is Considering the Purchase of a New Piece

question 4

Multiple Choice

Byron Corp is considering the purchase of a new piece of equipment.The cost savings from the equipment would result in an annual increase in cash flow of $100,000.The equipment will have an initial cost of $400,000 and have a 5 year life.The salvage value of the equipment is estimated to be $75,000.If the hurdle rate is 10%,what is the internal rate of return?

• A)between 6% and 8%
• B)between 8% and 10%
• C)between 10% and 12%
• D)between 12% and 14%

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Definitions:

Materials

Raw substances or components that are converted through the manufacturing process into finished goods.

Equivalent Units

A method in process costing that transforms units that are incomplete into an equivalent number of units that are considered fully completed.

Conversion Costs

Conversion costs are the combined costs of labor and overhead expenses required to convert raw materials into finished products.

Equivalent Units

Measures used in manufacturing to express the amount of work completed in terms of fully finished units during a given period.