The Following Information Is Available on a New Piece of Equipment

question 46

Multiple Choice

The following information is available on a new piece of equipment:
$\begin{array}{|l|r|}\hline \text { Cost of the Equipment } & \$ 21,720 \\\hline \text { Annual Cash Inflows } & 5,000 \\\hline \text { Internal Rate of Return } & 16 \% \\\hline\end{array}$
$$\begin{array} { | l | l| } \hline \text { Required Rate of Return } & 10 \%\\\hline\end{array}$$
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:

Average Variable Cost

The total variable costs of production divided by the quantity of output produced.

MC Curve

Stands for Marginal Cost Curve, depicting the cost of producing one additional unit of a good.

Shut-down Point

The level of operations at which a company's revenue is exactly equal to its variable costs, and it is indifferent between continuing operations and shutting down.

Economic Profit

The deviation between complete revenue and cumulative liabilities, including both named and unnamed expenses.