(Ignore Income Taxes in This Problem

question 101

Multiple Choice

(Ignore income taxes in this problem.) Trybus Corporation uses a discount rate of 16% in its capital budgeting. Partial analysis of an investment in automated equipment with a useful life of 5 years has thus far yielded a net present value of -$233,764. This analysis did not include any estimates of the intangible benefits of automating this process nor did it include any estimate of the salvage value of the equipment.
-Ignoring any cash flows from intangible benefits,to the nearest whole dollar how large would the salvage value of the automated equipment have to be to make the investment in the automated equipment financially attractive?

• A)$491,101
• B)$1,461,025
• C)$233,764
• D)$37,402

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Definitions:

Optimal Transfer Price

The price set for goods or services sold between divisions within the same company to maximize overall company profit.

Competitive Market

A market structure characterized by a large number of buyers and sellers, similar products, and easy market entry and exit, leading to competitive prices.

Wool Fabric

A textile material derived from the fleece of sheep or other animals, known for its warmth, durability, and natural insulating properties.

Corporate Income Tax

A tax imposed on the net income (profit) of corporations, calculated at varying rates depending on the jurisdiction.