Pierce Products Is Deciding Whether It Makes Sense to Purchase

question 66

Multiple Choice

Pierce Products is deciding whether it makes sense to purchase a new piece of equipment. The equipment costs $100,000 (payable at t = 0) t = 1: 0.33 t = 2: 0.45
T = 3: 0.15
T = 4: 0.07
At the end of four years the company expects to be able to sell the equipment for a salvage value of $10,000 (after-tax) . The company is in the 40 percent tax bracket. The company has an after-tax cost of capital of 11 percent. Since there is more uncertainty about the salvage value, the company has chosen to discount the salvage value at 12 percent. What is the net present value of purchasing the equipment?

• A) $ 9,140.78
• B) $16,498.72
• C) $20,564.23
• D) $22,853.90
• E) $28.982.64

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Definitions:

Political Unrest

A state of disagreement or conflict within a country involving its government, often leading to protests, strikes, or even violence.

Qualitative Forecasting

A forecasting method that relies on expert judgments and non-quantifiable information to predict future outcomes.

Special Expertise

Unique skills or knowledge in a particular field, making an individual or organization capable of performing tasks that require specialized understanding.

Quantitative Forecasting

A statistical approach to predict future events or outcomes based on numerical data and analysis.