The Becker Company Is Interested in Buying a Piece of Equipment

question 117

Multiple Choice

The Becker Company is interested in buying a piece of equipment. The following data have been assembled concerning this equipment:
$\begin{array}{|l|r|}\hline \text { Cost of Required Equipment } & \$ 250,000 \\\hline \text { Working capital required } & \$ 100,000 \\\hline \text { Annual operating cash inflows } & \$ 80,000 \\\hline \text { Cash repair at End of Four years } & \$ 40,000 \\\hline \text { Salvage Value at End of Six Years } & \$ 90,000 \\\hline\end{array}$
This equipment is expected to have a useful life of six years. At the end of the sixth year, the working capital would be released for use elsewhere. The company's discount rate is $10 \%$ . (Ignore income taxes in this problem.)
- The internal rate of return for this investment is closest to which of the following?

• A) 10%.
• B) 16%.
• C) 12%.
• D) 13%.

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Definitions:

Advertising

The act of promoting products, services, or brands through various media channels to influence consumer behavior or perception.

Revenues

The total income generated by a firm or organization from its activities, before any expenses are subtracted.

Utility Function

A mathematical representation of how consumer preferences over a set of goods and services are ordered.

Private Consumptions

Expenditures by individuals and households on goods and services for personal use, excluding investments and savings.