Use the Information Below to Answer the Following Questions -Refer to the Table Above

question 15

Multiple Choice

Use the information below to answer the following questions.
Han Ltd supplies chilli paste to large supermarket chains. The company is currently considering scrapping the old processor and investing in a new processor. Information about the investment is as follows: $$\begin{array} { l r } \text { Initial investment in processor } & \$ 105,000 \\\text { Operating cash flows over next 5 years: } & \\\quad \text { Cash receipts } & \$ 80,000 \\\quad \text { Cash payments } & \$ 40,000 \\\text { Residual value of processor in 5 years } & \$ 5,000 \\\text { Required rate of return } & 8 \% \\\text { Depreciation per antum } & \$ 20,000\end{array}$$
-Refer to the table above. Using the Net Present Value approach the management of Han Ltd will make which of the following decisions?

• A)Accept the investment proposal and purchase the new processor.
• B)Retain the current processor and buy the new processor.
• C)Retain the current processor.
• D)Increase the residual value of the processor.

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Definitions:

Contribution Margin

The difference between sales revenue and variable costs, indicating the amount available to cover fixed costs and generate profit.

Sales Price Variance

The difference between the actual selling price and the expected selling price of a product, multiplied by the number of units sold.

Fixed Overhead Budget Variance

The gap between the planned fixed overhead expenses and the real fixed overhead expenses that were realized.

Variance Reports

Financial documents that compare actual financial results to planned or budgeted amounts, highlighting discrepancies.