The Potential Owner/managers of the Yet to Be Formed New

question 47

Multiple Choice

The potential owner/managers of the yet to be formed new In-Line Blade Company are evaluating the prospects for the business. The new equipment is expected to be $5.5 million and have after tax cash flows of $400,000 for the first two years, $750,000 in the next two years, and $1,200,000 thereafter indefinitely. The owners estimate that they require a 15% rate of return. What is the value of the In-Line Blade Company; should they go forward with the investment?

• A) $3,872,122; yes.
• B) $4,072,236; yes.
• C) -$2,000,000; no.
• D) $943,596; yes.
• E) $105,185; yes.

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Definitions:

Indentured Servants

Individuals who agreed to work for a specified number of years in exchange for passage to a new country, room, board, and often eventual freedom, a common practice in colonial America.

Barbados

is an island country in the Lesser Antilles of the West Indies, in the Caribbean region of North America, known for its beaches, British colonial architecture, and vibrant culture.

Apalachee

A Native American people historically living in the Florida Panhandle, known for their agricultural practices, involvement in the de Soto expedition, and subsequent decline following European colonization.

Iroquois

A confederation of six Native American tribes in the Northeast United States, known for their influential political system and contributions to democratic thought.