Cabe Corporation Uses a Discount Rate of 18% in Its

question 161

Multiple Choice

Cabe Corporation uses a discount rate of 18% in its capital budgeting. Partial analysis of an investment in automated equipment with a useful life of 7 years has thus far yielded a net present value of -$155,606. This analysis did not include any estimates of the intangible benefits of automating this process nor did it include any estimate of the salvage value of the equipment. (Ignore income taxes.) Use Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using the tables provided.
Ignoring any salvage value, to the nearest whole dollar how large would the additional cash flow per year from the intangible benefits have to be to make the investment in the automated equipment financially attractive?

• A) $40,820
• B) $22,229
• C) $28,009
• D) $155,606

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Definitions:

Cash Flows

The total amount of money being transferred into and out of a business, often analyzed for evaluating the liquidity, flexibility, and overall financial health of the entity.

Cash-flow Management

The process of monitoring, analyzing, and adjusting a business's cash inflows and outflows, ensuring liquidity and operational stability.

Cash Budget

A financial plan that estimates incoming and outgoing cash flows over a particular period, helping manage liquidity and plan for future needs.

Debt Ratio

A financial ratio that measures the extent of a company's or individual's leverage, calculated by dividing total liabilities by total assets.