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Case-Based Critical Thinking Questions Case 3-2 Tom Owns a Small

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Case-Based Critical Thinking Questions Case 3-2 Tom owns a small company and is purchasing a software license for his company. He originally had to purchase a copy of each piece of software for each of his employees. However, one of his friends told him there were other types of license agreements. Tom has come to you and asked for help in deciding what kind of license is right for his company. Tom has another need. Everyone at the company needs a word processing software. You advise Tom to use a license that is priced at a flat rate. It is called a ____ license.

Comprehend the concept of the time value of money and its importance in capital budgeting decisions.

Understand how to determine and interpret the internal rate of return (IRR) for an investment.

Ability to compare and assess different capital investment opportunities based on NPV and IRR computations.

Understand the effect of salvage value on the NPV of a project.

Definitions:

Finished Goods Inventory

Finished goods inventory refers to the stock of completed products that are ready to be sold but have not yet been purchased or shipped to customers.

Conversion Cost

The combined costs of direct labor and manufacturing overhead that are incurred to convert raw materials into finished goods.

Direct Labour Cost

The total cost of wages paid to workers directly involved in manufacturing a product or providing a service.

Manufacturing Overhead

The indirect costs related to manufacturing that are not directly tied to a specific product, such as utilities, rent, and salaries of maintenance staff.