Anna Taylor Buys a Machine for Her Business

question 23

Multiple Choice

Anna Taylor buys a machine for her business. The machine costs $150,000. Anna estimates that the machine can produce $40,000 cash inflow per year for the next five years. Her cost of capital is 12 percent. What is the approximate net present value?

• A) $(5,808)
• B) $34,192
• C) $14,456
• D) $11,492

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Definitions:

Predetermined Overhead Rate

A rate calculated before the accounting period begins, used to allocate manufacturing overhead to individual units of production based on estimated costs.

Machine Hours

The total hours that a machine or group of machines operates during a specific period, often used as a basis for allocating manufacturing overhead.

Direct Labour

Compensation for employees who engage specifically in the creation of a company's products, an essential component of production costs.

Predetermined Overhead Rate

A rate used to apply manufacturing overhead to products or job orders, based on a predetermined formula.