Mr Wills Invested in a Business That Will Generate $75,000

question 14

Multiple Choice

Mr. Wills invested in a business that will generate $75,000 annual after-tax cash flow in years 0 and 1 and $90,000 annual after-tax cash flow in years 2 and 3. Compute the NPV of these cash flows at a 10% discount rate.

• A) $259,185
• B) $277,348
• C) $290,310
• D) None of the above

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Definitions:

Predetermined Overhead Rate

A rate used to allocate manufacturing overhead costs to products or job orders, estimated before the costs are actually incurred.

Actual Overhead

The real costs incurred for overhead in manufacturing or providing services, as opposed to budgeted or estimated overhead.

Cost Accounting System

A system of accounting for operations that captures and records all costs associated with production activities to evaluate efficiency and manage expenses.

Manufacturing Costs

All expenses directly involved in the production of goods, including raw materials, labor, and factory overhead.