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

question 47

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%.
-An investment project that requires a present investment of $210,000 will have cash inflows of "R" dollars each year for the next five years.: If "R" is less than $42,000, the payback period exceeds the life of the project. II) If "R" is greater than $42,000, the payback period exceeds the life of the project. If "R" equals $42,000, the payback period equals the life of the project.
Which statement(s) is (are) true?

• A)Only II and III.
• B)Only I and III.
• C)I, II, and III.
• D)Only I and II.

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