(Ignore Income Taxes in This Problem)The Management of Osborn Corporation

question 22

Multiple Choice

(Ignore income taxes in this problem) The management of Osborn Corporation is investigating an investment in equipment that would have a useful life of 8 years.The company uses a discount rate of 12% in its capital budgeting.The net present value of the investment,excluding the annual cash inflow,is -$401,414.To the nearest whole dollar how large would the annual cash inflow have to be to make the investment in the equipment financially attractive?

• A) $48,170
• B) $50,177
• C) $80,800
• D) $401,414

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Definitions:

Internal Rates Of Return

The financial rate that ensures a project's cash flows have a net present value of exactly zero.

Maximum Discount Rate

The highest interest rate set by a central bank to lend money to financial institutions.

Internal Rate Of Return

A metric used in financial analysis to estimate the profitability of potential investments, calculated as the rate of return that makes the net present value of all cash flows equal to zero.

Minimum Discount Rate

The lowest rate at which future cash flows are discounted to determine their present value.