If a Project Has a Net Present Value of £0

question 20

Multiple Choice

If a project has a net present value of £0 when a discount rate of 10 per cent is used, what can be concluded about the rate of return of the project?

• A)The rate of return is greater than 10 per cent.
• B)The rate of return is less than 10 per cent.
• C)The rate of return equals 10 per cent.
• D)The rate of return is 0.

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Definitions:

Manufacturing Overhead

Refers to all manufacturing costs excluding the direct costs of labor and materials, such as rent, utilities, and equipment depreciation.

Direct Labor-Hours

The total time worked by employees who are directly involved in the manufacturing process of a product.

Predetermined Overhead Rate

A rate used to allocate estimated overhead costs to products or services, based on a preselected activity base.

Manufacturing Overhead

All indirect costs associated with the manufacturing process, excluding direct materials and direct labor expenses.