A 30 Year Project Is Estimated to Cost $35 Million

question 294

Multiple Choice

A 30 year project is estimated to cost $35 million and provide annual cash flows of $5 million per year in years 1-5; $4 million per year in years 6-20 and $2 million per year in years 21-30. If the
Company's required rate of return is 10%, determine the payback of the project.

• A) 6.50 years
• B) 7.00 years
• C) 7.50 years
• D) 8.00 years
• E) 8.50 years

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Definitions:

Precision Drills

High-accuracy tools used for making holes in various materials with exact measurements.

Variable Overhead

Costs that fluctuate with production volume, such as utilities or materials used in the manufacturing process.

Overhead Efficiency

The effectiveness with which an organization manages its overhead costs in relation to its operational activities.

Direct Labor-Hours

Cumulative working hours of employees specifically involved in the production process.