Figure 14-10. Present Value of $1

question 123

Essay

Figure 14-10.
Present value of $1
Present value of an Annuity of $1

-Refer to Figure 14-10. Howard-Parr Company is considering an investment that will have an initial cost of $500,000 and yield annual net cash inflows of $130,000. Yearly depreciation will be $100,000. The equipment is expected to be useful for five years, at which point it will be scrapped with no salvage value. Howard-Parr requires a minimum rate of return of 10%.

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Definitions:

Mark Up

The percentage added to the cost price of goods to cover overhead and profit.

Direct Labor-Hours

This refers to the total number of hours worked by employees who are directly involved in the production of goods or services.

Machine-Hours

A measure of production activity that quantifies the total hours machines are operated in the manufacturing process.

Direct Labor Cost

The wages or salaries directly attributable to the production of goods or services, excluding indirect costs such as supervision and maintenance.