A Capacity Alternative Has an Initial Cost of $50,000 and Cash

question 42

Multiple Choice

A capacity alternative has an initial cost of $50,000 and cash flow of $20,000 for each of the next four years.If the cost of capital is 5 percent,the net present value of this investment is:

• A)greater than $80,000 but less than $130,000.
• B)greater than $130,000.
• C)less than $30,000.
• D)impossible to calculate,because no interest rate is given.
• E)impossible to calculate,because variable costs are not known.

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Definitions:

Predetermined Overhead Rates

Predetermined overhead rates involve estimating indirect manufacturing costs and applying them to specific jobs or departments based on a consistent allocation base, facilitating more accurate product costing.

Ending Inventory

The value of goods available for sale at the end of an accounting period, calculated by adding new purchases to beginning inventory and subtracting cost of goods sold.

Balance Sheet

A financial statement that provides a snapshot of a company's assets, liabilities, and equity at a specific point in time.

Bill of Materials

A comprehensive list of materials, components, and instructions required to construct, manufacture, or repair a product or service.