A Cost-Cutting Project Has an Initial Cost of $1,200 and Annual

question 13

Multiple Choice

A cost-cutting project has an initial cost of $1,200 and annual costs of $380 for each year of the project's 4-year life.The equivalent annual cost for this project is best described as the:

• A)4-year annuity payment that has the same net present value as the project's costs given a stated discount rate.
• B)4-year total of all costs divided by four.
• C)annual sales needed to offset these additional costs.
• D)lump sum payment at Time 0 that is equal to these additional costs at a given discount rate.
• E)4-year average aftertax cash flow resulting from the annual costs.

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Definitions:

Associated Companies

Companies that are connected through common ownership or control but aren't subsidiaries or fully owned entities of the parent company.

Equity Method

An accounting technique used by companies to record and report their investments in other companies based on the level of control and influence they have over the company.

Voting Stock

Shares of a company that grant the shareholder voting rights in corporate decisions and elections of the board of directors.

Significant Influence

Significant influence is a term used in accounting to describe the power to participate in the financial and operating policy decisions of another company, without having full control or majority ownership.