(Present Value Tables Are Needed -Sommer Corporation's Hurdle Rate Is 12

question 79

Multiple Choice

(Present value tables are needed.) Sommer Corporation is deciding whether to automate one phase of its production process.The equipment has a six-year life and will cost $410,000.Projected net cash inflows from the equipment are as follows: $$\begin{array} { | c | c | } \hline \text { Year 1 } & \$ 115,000 \\\hline \text { Year 2 } & \$ 100,000 \\\hline \text { Year } \mathbf { 3 } & \$ 110,000 \\\hline \text { Year 4 } & \$ 100,000 \\\hline \text { Year } \mathbf { 5 } & \$ 95,000 \\\hline \text { Year 6 } & \$ 90,000 \\\hline\end{array}$$
-Sommer Corporation's hurdle rate is 12%.
If Sommer Corporation decides to refurbish the equipment at a cost of $50,000 at the end of year 6,it could be used for one more year and would have a $30,000 residual value at the end of year 7.Assume the cash inflow in year 7 is $65,000.What is the NPV of just the refurbishment?

• A)$ 4,030
• B)$15,820
• C)$17,590
• D)$41,170

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Definitions:

Tax Revenues

The income that is received by the government from taxpayers, including individuals and businesses, to fund public expenditures.

Deadweight Loss

The loss of economic efficiency that can occur when the equilibrium for a good or a service is not achieved or is not achievable.

Marginal Tax Rate

The rate at which your last dollar of income is taxed, indicating the percentage of tax applied to your income for each tax bracket in which you qualify.

Income Security

Government programs designed to protect individuals from economic hardships and ensure a minimum level of income.