Reference: 10-06
the Becker Company Is Interested in Buying a Piece

question 43

Multiple Choice

Reference: 10-06
The Becker Company is interested in buying a piece of equipment that it needs. The following data have been assembled concerning this equipment: $$\begin{array} { | l | l | } \hline \text { Cost of required equipment } & \$ 250,000 \\\hline \text { Working capital required } & \$ 100,000 \\\hline \text { Annual operating cash inflows } & \$ 80,000 \\\hline \text { Cash repair at end of 4 years } & \$ 40,000 \\\hline \text { Salvage value at end of 6 years } & \$ 90,000 \\\hline\end{array}$$ This equipment is expected to have a useful life of 6 years. At the end of the sixth year the working capital would be released for use elsewhere. The company's discount rate is 10%.
-The present value of the net cash flows (all cash inflows less all cash outflows) occurring during year 6 is closest to:

• A)$270,000.
• B)$107,200.
• C)$195,900.
• D)$152,300.

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Definitions:

Vividness Effect

Occurs during decision-making when some salient or vivid facts attract our attention regardless of their actual value as evidence.

Probabilistic Thinking

The ability to understand and reason with probabilities, recognizing that most predictions about the future involve some level of uncertainty.

Placebo Effect

Occurs when individuals receiving a placebo (a “dummy” version of a treatment) experience improvement in their symptoms and attribute the improvement to the placebo.

Relativistic Thought

The essence of postformal thought in which several truth systems exist describing the reality of the same event, and they appear to be logically equivalent.