Tressor Company Is Considering a 5-Year Project

question 176

Multiple Choice

Tressor Company is considering a 5-year project. The company plans to invest $90,000 now and it forecasts cash flows for each year of $27,000. The company requires that investments yield a discount rate of at least 14%. Selected factors for a present value of an annuity of 1 for five years are shown below: Interest rate
Present value of an annuity of $1 factor for year 5
10 % 3.7908
12 % 3.6048
14 % 3.4331
Calculate the internal rate of return to determine whether it should accept this project.

• A) The project should be accepted because it will earn more than 14%.
• B) The project will earn more than 12% but less than 14%. At a hurdle rate of 14%, the project should be rejected.
• C) The project should be rejected because it will earn less than 14%.
• D) The project should be accepted because it will earn more than 10%.
• E) The project should be rejected because it will not earn exactly 14%.

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Definitions:

Direct Labour-Hours

A measure of the labor time worked directly on specific jobs or products.

Work in Process

Inventory that represents partially completed goods which are still in the production process.

Job-Order Costing System

An accounting method that tracks costs individually for each job rather than for a process or period.

Job Cost Sheet

A document that records the materials, labor, and overhead costs incurred for a specific job or project.