Cabe Corporation Uses a Discount Rate of 18% in Its

question 31

Multiple Choice

Cabe Corporation uses a discount rate of 18% in its capital budgeting. Partial analysis of an investment in automated equipment with a useful life of 7 years has thus far yielded a net present value of -$155,606. This analysis did not include any estimates of the intangible benefits of automating this process nor did it include any estimate of the salvage value of the equipment. (Ignore income taxes.) Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.Ignoring any cash flows from intangible benefits, to the nearest whole dollar how large would the salvage value of the automated equipment have to be to make the investment in the automated equipment financially attractive?

• A) $495,561
• B) $28,009
• C) $155,606
• D) $864,478

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Definitions:

Price-earnings Ratio

A valuation ratio of a company's current share price compared to its per-share earnings, indicating market expectations.

Earnings Per Share

Earnings per share (EPS) is a financial metric that divides a company's profit by the number of outstanding shares, indicating the profitability attributed to each share.

Par Value

The nominal or face value of a stock or bond as stated by the issuing company, not necessarily reflecting its market value.

Statutory Restriction

Legal limitations or constraints, often imposed by law, that dictate how an organization can operate or use certain resources.