Suppose That D'Anconia Copper Retained the $200 Million in Cash

question 59

Multiple Choice

Suppose that d'Anconia Copper retained the $200 million in cash so that it would not need to raise new funds from outside investors for an expansion it has planned for next year.If it did raise new funds,it would have to pay issuance fees.Assuming that these fees can be expensed for corporate tax purposed,the amount that d'Anconia Copper needs to save in issuance fees to make retaining the cash beneficial for its investors is closest to:

• A) $2.0 million
• B) $5.5 million
• C) $6.5 million
• D) $7.0 million

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Definitions:

Standard Machine-Hours

A measure of manufacturing time that is expected to be used, based on a standard rate of output per machine.

Manufacturing Overhead

All indirect costs associated with manufacturing, excluding direct labor and direct materials. This includes expenses such as utilities and rent for the manufacturing facilities.

Direct Labor Costs

Expenses associated with employees who are directly involved in the production of goods or services.

Actual Hours

Refers to the real amount of time spent on a task or activity, as recorded or reported.