Sigma Is Thinking About Purchasing a New Clam Digger for $14,000.The

question 46

Multiple Choice

Sigma is thinking about purchasing a new clam digger for $14,000.The expected net cash flows resulting from the digger are $9,000 in year 1, $7,000 in the 2nd year, $5,000 in the 3rd year, and $3,000 in the 4th year.Should Sigma purchase this digger if its cost of capital is 12 percent?

• A)Yes, NPV = $3,176
• B)Yes, NPV = $5,084
• C)Yes, NPV = $16,605
• D)Yes, NPV = $19,084

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Definitions:

Equity

Equity represents an owner's share in the assets of a company, after all liabilities have been subtracted.

Accounts Receivable

The balance of money owed to a company by its customers for goods or services delivered or used but not yet paid for.

Credit

An entry recording an increase in assets or decrease in liabilities and equity on the company’s balance sheet, or the provision of goods or services in exchange for a promise of payment in the future.

Equity

The value of an ownership interest in property, including shareholders' equity in a company, represented by the assets minus liabilities.