(Present Value Tables Are Needed -What Is the Net Present Value of the F54 Model

question 67

Multiple Choice

(Present value tables are needed.) Miami Marine Enterprises is evaluating the purchase of an elaborate hydraulic lift system for all of its locations to use for the boats brought in for repair.The company has narrowed their choices down to two: the B14 Model and the F54 Model.Financial data about the two choices follows. $\begin{array}{|l|c|c|}\hline& \text { B14 Model } & \text { F54 Model } \\\hline \text { Investment } & \$320,000 & \$ 240,000 \\\hline \text { Useful life (years) } & 8 & 8 \\\hline \text { Estimated annual net cash inflows for useful life } &\$ 75,000 & \$ 40,000 \\\hline \text { Residual value } & \$30,000 & \$ 10,000 \\\hline \text { Depreciation method } & \text { Straight-line } & \text { Straight-line } \\\hline \text { Required rate of return } & 14 \% & 10 \% \\\hline\end{array}$
-What is the net present value of the F54 Model?

• A)$21,930 negative
• B)$38,455 positive
• C)$178,070 positive
• D)$218,070 positive

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Definitions:

Investment Projects

Initiatives undertaken by a business or organization to invest in assets or resources with the expectation of generating future profit.

Discount Rate

The interest rate used to discount future cash flows of a financial instrument to present value.

Lease Payments

Regular payments made for the use of an asset or property under a lease agreement.

Incremental Sales

The additional sales generated by a new marketing campaign, product launch, or any other business activity, over and above existing sales.