A Company Is Considering the Purchase of a New Piece

question 152

True/False

A company is considering the purchase of a new piece of equipment for $90,000. Predicted annual net cash inflows from the investment are $36,000
(Year 1), $30,000
(Year 2), $18,000
(Year 3), $12,000
(Year 4), and $6,000
(Year 5). The average income from operations over the five-year life is $20,400. The payback period is 3.5 years.

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Definitions:

Market Share

The portion of a market controlled by a particular company or product, often expressed as a percentage of total sales in that market.

Spin-off

A type of corporate restructuring where a company creates a new independent company from its existing operations, assets, or divisions.

Divestiture

The opposite of an acquisition. That is, a company sells a portion of its assets, often a whole division, to another firm or individual.

Market Value

The current price at which an asset or service can be bought or sold in the marketplace, reflecting the value as perceived by the market participants.