A Small Business Received a Five-Year $1,000,000 Loan at a Subsidized

question 54

Multiple Choice

A small business received a five-year $1,000,000 loan at a subsidized rate of 3% per year.The firm will pay 3% annual interest payment each year and the principal at the end of five years.If market interest rates on similar loans are 6% per year,what is the NPV of the loan? (Ignore taxes.)

• A)+$126,371
• B)+$348,369
• C)-$501,595
• D)-$137,391

---

Definitions:

Departmental Overhead Rate

A measure used to allocate overhead costs to individual departments based on certain criteria, like direct labor hours.

Cost Object

Any item for which cost is measured and assigned, such as products, services, or departments.

Plantwide Overhead Rate

A single overhead rate calculated for an entire manufacturing plant, used to allocate overhead costs to products.

Direct Labor Hours

The total hours worked by employees directly involved in the production process, used in calculating cost allocations and efficiency.