Use the Information Below to Answer the Following Question(s)

question 152

Multiple Choice

Use the information below to answer the following question(s) .Wet Water Company drills residential and commercial wells.The company is in the process of analyzing the purchase of a new drill.Information on the proposal is provided below:
Note: Other than the initial investment, cash flows are end of period.The working capital is returned at the end of the investment period.
-Alberta Ltd.is considering the purchase of new machinery which costs $147,800.The machine is expected to save $42,300 in operating costs annually for the next 7 years.By how much can the annual cost savings fall (to the nearest hundred dollars) and still provide a 16% return? Ignore income taxes.

• A)$5,700
• B)$36,600
• C)$21,200
• D)$42,300
• E)$0

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Definitions:

Collateral

Assets pledged by a borrower to secure a loan or other credit, and subject to seizure on default.

Perfected Through Possession

A legal status indicating that a party's interest in a piece of property or an asset is fully secured and acknowledged legally because they possess it.

Stocks

Equity investments representing ownership interests in corporations, giving shareholders a claim on the company's earnings and assets.

Certificates of Deposit

Interest-bearing bank deposits with a fixed maturity date, penalty for early withdrawal, and are insured.