A New Asset Is Expected to Provide Service Over the Next

question 106

Multiple Choice

A new asset is expected to provide service over the next four years. It will cost $500,000, generates annual cash inflows of $150,000, and requires cash operating expenses of $30,000 each year. In addition, a $10,000 overhaul will be needed in year 3.

If the company requires a 10% rate of return, the net present value of this machine would be:

• A) $(127,110), and the machine meets the company's rate-of-return requirement.
• B) $(127,110), and the machine does not meet the company's rate-of-return requirement.
• C) $(129,600), and the machine does not meet the company's rate-of-return requirement.
• D) $(151,700), and the machine meets the company's rate-of-return requirement.
• E) None of the answers is correct.