Generro Company Is Considering the Purchase of Equipment That Would

question 91

Multiple Choice

Generro Company is considering the purchase of equipment that would cost $36,000 and offer annual cash inflows of $10,500 over its useful life of 5 years.Assuming a desired rate of return of 12%,is the project acceptable? (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

• A) No, since the negative net present value indicates the investment will yield a rate of return below the desired rate of return.
• B) Yes, since the investment will generate $52,500 in future cash flows, which is greater than the purchase cost of $36,000.
• C) Yes, since the positive net present value indicates the investment will earn a rate of return greater than 12%.
• D) The answer cannot be determined.