Future Semiconductors Is Evaluating a New Etching Tool

question 23

Multiple Choice

Future Semiconductors is evaluating a new etching tool.The equipment costs $1.0m and will generate after-tax cash inflows of $0.4m per year for six years.Assume the firm has a 15% cost of capital.What's the NPV of the investment?

• A) $0.51m
• B) $0.45m
• C) $1.51m
• D) $1.69m

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Definitions:

International Convergence

A goal or process of harmonizing accounting standards and practices across different countries to improve comparability and transparency of financial reporting globally.

Accounting Standards

Formal guidelines and rules for accounting practices that determine how financial statements are prepared and presented.

FASB

Financial Accounting Standards Board, an independent nonprofit organization responsible for establishing accounting and financial reporting standards for companies and nonprofit organizations in the United States.

Bright-line Rules

Clearly defined rules or standards that leave little ambiguity and are easy to implement or enforce.