Western Electronics (WE) Is Reviewing the Following Data Relating to a New

question 46

Multiple Choice

Western Electronics (WE) is reviewing the following data relating to a new equipment proposal: $\begin{array}{|l|c|}\hline \text { Net initial investment } & \$ 50,000 \\\hline \text { After-tax cash inflow from disposal of the investment after } 5 \text { years } & \$ 10,000 \\\hline \text { Present value of an annuity of } \$ 1 \text { at } 12 \% \text { for } 5 \text { years } & 3.605 \\\hline \text { Present value of } \$ 1 \text { at } 12 \% \text { in } 5 \text { years } & 0.567 \\\hline\end{array}$ WE expects the net after-tax savings in cash outflows from the investment to be equal in each of the 5 years.What is the minimum amount of after-tax annual savings (including depreciation effects) needed to make the investment yield a 12% return (rounded to the nearest whole dollar) ?

• A)$8,189.
• B)$11,111.
• C)$12,297.
• D)$13,889.
• E)$15,678.

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Definitions:

Prior Probabilities

Initial probabilities assigned to outcomes or events before new evidence or data is considered.

Bayes' Law

A theorem describing the probability of an event, based on prior knowledge of conditions that might be related to the event.

Condo Sales

Refers to the transactions or activities involved in buying and selling condominium units.

Interest Rates

The percentage at which interest is paid by a borrower for the use of money they borrow from a lender, or the rate earned on an investment, typically expressed as an annual percentage rate.