Sapient Ltd Is Contemplating the Purchase of a Piece of Equipment

question 73

Multiple Choice

Sapient Ltd is contemplating the purchase of a piece of equipment with the following cash flow data: $$\begin{array} { c c c c } &&\text { Incremental }\\\underline{\text { Year }} & \underline{\text { Initial Cost } }&\underline{\text { Contribution }} & \text { Terminal Value } \\ 0 & \$ 84,000 & & \\1 & & \$ 30,000 & \\2 & & 25,000 & \\3 & & 20,000 & \\4 & & 15,000 & \$ 9,000\end{array}$$ Ignoring income taxes, what is the payback period?

• A) 3.50 years
• B) 3.00 years
• C) 3.33 years
• D) 3.60 years

Understand the concept of residual (salvage) value in the context of asset depreciation.

Analyze the impact of asset purchase, residual value, and useful life estimates on depreciation expense.

Understand how accumulated depreciation affects the carrying amount of an asset.

Identify costs included in the determination of an asset’s depreciable base.

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Definitions:

Primary Sex Characteristics

The physical structures directly involved in reproduction, present from birth and developed further during puberty.

Secondary Sex Characteristics

Features that appear at puberty, distinguishing two sexes from each other, not directly involved in reproduction.

Male Testes

Reproductive organs in males that produce sperm and male sex hormones, primarily testosterone.

Female Ovaries

Reproductive organs in females that produce eggs and hormones like estrogen and progesterone.