Smart Bumpkins Wants to Increase Production by Adding New Equipment

question 65

Multiple Choice

Smart Bumpkins wants to increase production by adding new equipment.The cost of the upgrade is $190,000 and expected cash flows from the new upgrade are expected to be as follows over the next 6 years and the risk free rate is 5%.Should the company upgrade?
$$\begin{array} { | c | c | } \hline \text { Cash Flaws } & \text { Certainty Equivalents } \\\hline \$ 45,000 & .85 \\\hline \$ 45,000 & .80 \\\hline \$ 75,000 & .75 \\\hline \$ 110,000 & .70 \\\hline \$ 110,000 & .60 \\\hline \$ 110,000 & .50 \\\hline\end{array}$$

• A)Yes, the CNPV is $195,196.06
• B)Yes, the CNPV is $83,775.16
• C)No, the CNPV is -$75,522.84
• D)No, the CNPV is -$42,175.93

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Definitions:

Improved Metacognitive Skill

Enhanced ability to understand, control, and manipulate one's own cognitive processes, such as learning and problem-solving.

Rumination Coping Style

A maladaptive coping mechanism characterized by continuously thinking about the causes, situational factors, and consequences of one’s negative emotional experience.

Depressed Mood

is a state characterized by feelings of sadness, emptiness, or hopelessness that may affect a person's thoughts, behavior, and overall well-being.

Stressors

Events, situations, or stimuli that cause stress by requiring an individual to adapt or respond.