Byron Corp Is Considering the Purchase of a New Piece

question 7

Multiple Choice

Byron Corp is considering the purchase of a new piece of equipment.The cost savings from the equipment would result in an annual increase in cash flow of $100,000.The equipment will have an initial cost of $400,000 and have a 5 year life.The salvage value of the equipment is estimated to be $75,000.If the hurdle rate is 15%,what is the approximate net present value? Ignore income taxes.

• A)negative $27,490
• B)zero
• C)positive $400,000
• D)positive $75,000

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