(Present Value Tables Are Needed

question 171

Multiple Choice

(Present value tables are needed.) Somerville Corporation is considering investing in specialized equipment costing $618,000. The equipment has a useful life of 5 years and a residual value of $55,000. Depreciation is calculated using the straight-line method. The expected net cash inflows from the investment are: Somerville Corporation's required rate of return is 14%.
The net present value of the investment is closest to

• A)$62,976 negative.
• B)$5,886 negative.
• C)$34,431 negative.
• D)$181,000 positive.

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Definitions:

Account Payable

Money owed by a business to its suppliers or creditors for goods and services purchased on credit, considered a current liability.

Owner's Equity

The residual interest in the assets of the entity after deducting liabilities, representing the ownership interest of shareholders.

Cash Payment

A transaction that involves the immediate transfer of cash from the buyer to the seller for the purchase of goods or services.

Liabilities

Financial obligations or debts that a company owes to others, which must be paid back in the future.