Reference: 10-07
UR Company Is Considering Rebuilding and Selling Used

question 49

Multiple Choice

Reference: 10-07
UR Company is considering rebuilding and selling used alternators for automobiles. The company estimates that the net operating cash flows (sales less cash operating expenses) arising from the rebuilding and sale of the used alternators would be as follows (numbers in parentheses indicate an outflow) : $$\begin{array} { | l | l | } \hline \text { Years } 1 - 10 & \$ 90,000 \\\hline \text { Year } 11 & \$ ( 20,000 ) \\\hline \text { Year } 12 & \$ 100,000 \\\hline\end{array}$$ In addition to the above net operating cash flows, UR Company would purchase production equipment costing
$200,000 now to use in the rebuilding of the alternators. The equipment would have a 12-year life and a $15,000 salvage value. The company's discount rate is 10%.
-The Higgins Company has just purchased a piece of equipment at a cost of $120,000. This equipment will reduce operating costs by $40,000 each year for the next eight years. This equipment replaces old equipment that was sold for $8,000 cash. The new equipment has a payback period of:

• A)10.0 years.
• B)8.0 years.
• C)3.0 years.
• D)2.8 years.

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Definitions:

Angel Group

A collective of individual investors who pool their resources to invest in start-up businesses.

Pitch

A presentation or proposal designed to persuade or inform, often used in business and marketing contexts.

Collaborate

To work jointly with others or together especially in an intellectual endeavor, often leading to shared goals or projects.

James-Lange Theory

A theory of emotion proposing that emotions result from physiological reactions to events.