Idaho Industries Inc

question 85

Multiple Choice

Idaho Industries Inc.is considering a project that has an initial after-tax outlay or after-tax cost of $450,000.The respective future cash inflows from its five-year project for years 1 through 5 are $95,000 each year.Idaho expects an additional cash flow of $60,000 in the fifth year.The firm uses the IRR method and has a hurdle rate of 10%.Will Idaho accept the project?

• A)Idaho accepts the project because it has an IRR greater than 10%.
• B)Idaho rejects the project because it has an IRR less than 10%.
• C)Idaho accepts the project because it has an IRR greater than 5%.
• D)There is not enough information to answer this question.

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Definitions:

Budgeted Costs

Estimated expenses planned in advance for a specific period, often used as targets or benchmarks for actual performance.

Direct Materials Purchase Budget

A budget estimating the raw materials that need to be purchased to meet projected production demands.

Ending Inventories

The final quantity and value of materials, work-in-process, and finished goods that a company holds at the end of an accounting period.

Direct Labor Budget

A projection of the total costs associated with the direct labor needed for a specific period, based on projected levels of production or services.