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sweet-ann [11.9K]
3 years ago
15

Projects S and L both have normal cash flows, and the projects have the same risk, hence both are evaluated with the same WACC,

10%. However, S has a higher IRR than L. Which of the following statements is CORRECT?
A. Project S must have a higher NPV than Project L.
B. If Project S has a positive NPV, Project L must also have a positive NPV.
C. If the WACC falls, each project's IRR will increase.
D. If the WACC increases, each project's IRR will decrease.
E. If Projects S and L have the same NPV at the current WACC, 10%, then Project L, the one with the lower IRR, would have a higher NPV if the WACC used to evaluate the projects declined.
Business
1 answer:
kirill115 [55]3 years ago
6 0

Answer:

E. If Projects S and L have the same NPV at the current WACC, 10%, then Project L, the one with the lower IRR, would have a higher NPV if the WACC used to evaluate the projects declined.

Explanation:

Net present value is the present value of after tax cash flows from an investment less the amount invested.

Internal rate of return is the discount rate that equates the after tax cash flows from an investment to the amount invested

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8. Hayward Industries manufactures dining chairs and tables. The following information is available: Dining ChairsTablesTotal Co
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Answer:

Instructions are listed below.

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Giving the following information:

Dining Chairs - Tables - Total cost

Machine setups: 200 - 600 - $48,000

Inspections: 250 - 470 - $72,000

Labor hours: 2,600 - 2,400

A) A single overhead rate:

To calculate the estimated manufacturing overhead rate we need to use the following formula:

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

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Now, we can allocate overhead based on direct labor hours:

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Allocated MOH= 24*2,400= $57,600

B) We have to calculate an overhead rate for each activity cost pool.

<u>Overhead rate:</u>

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Estimated manufacturing overhead rate= 48,000/800= $60 per machine hour set up

Inspections:

Estimated manufacturing overhead rate= 72,000/ 720= $100 per inspection

Based on the overhead rate, we can allocate overhead to each product.

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Tables:

Allocated MOH= 60*600 + 100*470= $83,000

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