Rhoads Corporation Is Considering a Capital Budgeting Project That Would

question 60

Multiple Choice

Rhoads Corporation is considering a capital budgeting project that would require an investment of $160,000 in equipment with a 4 year expected life and zero salvage value.Annual incremental sales will be $460,000 and annual incremental cash operating expenses will be $330,000.The company's income tax rate is 35% and the after-tax discount rate is 15%.The company uses straight-line depreciation on all equipment; the annual depreciation expense will be $40,000.Assume cash flows occur at the end of the year except for the initial investments.The company takes income taxes into account in its capital budgeting. The net present value of the project is closest to:

• A) $211,280
• B) $234,000
• C) $281,316
• D) $121,316

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Definitions:

Per-unit Standards

Predetermined costs to produce a single unit of product, used in budgeting and cost control.

Direct Labor Hours

The total hours worked by employees directly involved in manufacturing products or providing services.

Direct Materials Quantity Variance

The difference between the actual quantity of materials used in production and the standard quantity expected, multiplied by the standard cost per unit.

Per-unit Standards

Per-unit standards refer to the predetermined costs or metrics applied to individual units of production, aiding in budgeting and performance evaluation.