Thompson Manufacturing Must Choose Between Two Types of Furnaces to Install.Model

question 38

Multiple Choice

Thompson Manufacturing must choose between two types of furnaces to install.Model A has a 6-year life,and an NPV of $5,000.Model B has a 5-year life,and an NPV of $4,200.The relevant discount rate is 12%.Which model should be chosen? What's the annual cash flow from that model?

• A) Model B; $1,165
• B) Model B; $840
• C) Model A; $833
• D) Model A; $1,216

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Definitions:

T-Accounts

A graphical representation used in accounting to show the debit and credit transactions affecting each aspect of a company's finances or accounts.

Raw Materials

Basic materials that are used in the production process to manufacture products, before any processing or manufacturing has occurred.

Finished Goods

Items that are finished being made but have not been purchased by consumers yet.

Job-Order Costing

An accounting method that assigns costs to specific production batches or jobs, suitable for firms producing distinct products or jobs.