Simpson,Inc

question 68

Multiple Choice

Simpson,Inc.is considering a five-year project that has an initial after-tax outlay or after-tax cost of $80,000.The respective future cash inflows from its project for years 1,2,3,4 and 5 are: $15,000,$25,000,$35,000,$45,000 and $55,000.Simpson uses the net present value method and has a discount rate of 9%.Will Simpson accept the project?

• A)Simpson accepts the project because the NPV is $129,455.25.
• B)Simpson accepts the project because the NPV is 79,455.25.
• C)Simpson accepts the project because the NPV is $49,455.25.
• D)Simpson accepts the project because the NPV is less than zero.

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Definitions:

Denominator Activity

The total base activity used to allocate overhead costs in cost accounting, such as total direct labor hours or machine hours available.

Direct Labor-Hours

The total hours worked by employees directly involved in the manufacturing process, used in allocating manufacturing overhead.

Overapplied

A condition where the manufacturing overhead allocated to products exceeds the actual manufacturing overhead costs incurred.

Underapplied

A situation in cost accounting where the allocated overhead costs are less than the actual overhead costs.