Byron Corp

question 73

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 10%, what is the approximate net present value? Ignore income taxes.

• A) $25,648
• B) $100,000
• C) $175,000
• D) ($20,291)

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Definitions:

Vickrey Auction

A type of sealed-bid auction where the highest bidder wins but pays the price offered by the second-highest bidder.

Willingness To Pay

The maximum amount an individual is ready to spend to acquire a good or service, reflecting the value they assign to it.

Expected Revenue

The predicted amount of money that a business will receive from its sales over a certain period, usually calculated by multiplying expected sales by the price of goods or services.

Probability

A numerical representation between 0 and 1 that indicates the likelihood of an event transpiring.