(Ignore Income Taxes in This Problem

question 31

Multiple Choice

(Ignore income taxes in this problem.) The management of Bischke Corporation is investigating an investment in equipment that would have a useful life of 8 years. The company uses a discount rate of 16% in its capital budgeting. Good estimates are available for the initial investment and the annual cash operating outflows, but not for the annual cash inflows and the salvage value of the equipment. The net present value of the initial investment and the annual cash outflows is -$238,486.
-Ignoring any salvage value, to the nearest whole dollar how large would the annual cash inflow have to be to make the investment in the equipment financially attractive?

• A) $238,486
• B) $54,900
• C) $38,158
• D) $29,811

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Definitions:

Worker's Output

The quantity of goods or services produced by an employee within a certain period of time.

Corporation

A legal entity that is separate and distinct from its owners, who are shareholders, and is authorized to act as a single entity, legally endowed with rights and responsibilities.

Accounting Profit

The total revenue of a firm minus the explicit costs directly tied to those revenues.

Economic Profit

The difference between total revenues and total costs, including both explicit and implicit costs.