The Following Information Is Available on a New Piece of Equipment

question 87

Multiple Choice

The following information is available on a new piece of equipment: $\begin{array} { l r } \text { Cost of the Equipment } & \$ 21,720 \\\text { Annual Cash Inflows } & \$ 5,000 \\\text { Internal Rate of Return } & 16 \% \\\text { Required Rate of Return } & 10 \%\end{array}$ What is approximately the life of the equipment? (Ignore income taxes in this problem.)

• A) 4.3 years.
• B) 6.0 years.
• C) 8.0 years.
• D) It is impossible to determine from the data given.

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Definitions:

Daily Settlements

The process by which futures contracts are revalued at the end of each trading day based on the closing market prices to reflect gains and losses.

Sum

The total result of adding two or more numbers or quantities together.

Derivatives Exchanges

Specialized marketplaces where derivatives securities, such as futures and options, are traded.

Electronic Trading

The use of computer systems, often connected to the internet, to execute buy and sell orders in financial markets without the need for a physical trading floor.