Dexter Company Is Considering Purchasing Equipment $\begin{array}{ll}\text { Year 1 } & \$ 120,000 \\\text { Year 2 } & \$ 200,000\end{array}$

question 6

Multiple Choice

Dexter Company is considering purchasing equipment.The equipment will produce the following cash flows: $\begin{array}{ll}\text { Year 1 } & \$ 120,000 \\\text { Year 2 } & \$ 200,000\end{array}$ Dexter requires a minimum rate of return of 10%.What is the maximum price Dexter should pay for this equipment?

• A)$274,380
• B)$165,290
• C)$320,000
• D)$160,000

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Definitions:

Accounts Receivable

Money owed to a business by its customers for goods or services delivered on credit.

Compensating Balance

A minimum balance that must be maintained in a bank account, often required by banks in return for loans or as part of a service agreement.

Effective Interest Rate

The actual interest rate on a loan or investment, taking into account the effect of compounding, fees, and other factors, more accurately reflecting the true cost or yield than the nominal rate.

Quoted Interest Rate

The interest rate that a lender provides to a borrower, usually expressed as an annual percentage of the loan amount.