The Management of Hansley Corporation Is Investigating an Investment in Equipment

question 399

Multiple Choice

The management of Hansley Corporation is investigating an investment in equipment that would have a useful life of 5 years. The company uses a discount rate of 18% in its capital budgeting. Good estimates are available for the initial investment and the annual cash operating outflows, but not for the annual cash inflows and the salvage value of the equipment. The net present value of the initial investment and the annual cash outflows is -$273,300. (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 salvage value, to the nearest whole dollar how large would the annual cash inflow have to be to make the investment in the equipment financially attractive?

• A) $54,660
• B) $49,194
• C) $87,400
• D) $273,300

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Definitions:

U.S. Tariff

A tax imposed by the United States government on imported goods and services, intended to protect domestic industries and generate revenue.

Steel

A strong, hard metal made of iron and carbon, and often other elements, used extensively in construction and manufacturing.

Domestic Quantity

The total amount of a good or service produced within a country's borders, available for consumption or export.

Supplied

Refers to the total amount of a good or service that is available to consumers in a market at a given price level.