Use This Information to Answer the Following Question

question 10

Multiple Choice

Use this information to answer the following question. You have the opportunity to purchase a machine for $10,000.After careful study of expected costs and revenues,you estimate that the machine will produce a net cash flow of $3,200 annually and will last 5 years.Based on an interest rate of 7 percent,determine the present value of the machine and if the machine should be purchased.

• A)$13,120,the machine should not be purchased
• B)$13,120,the machine should be purchased
• C)$2,282,the machine should not be purchased
• D)$7,130,the machine should not be purchased

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Definitions:

Horizontal Analysis

A financial analysis technique that compares historical financial data over a series of reporting periods to identify trends and growth patterns.

Vertical Analysis

A method of financial statement analysis in which each entry for each of the three major categories of accounts (assets, liabilities, and equities) in a balance sheet is represented as a proportion of the total account.

Balance Sheet Data

The information presented on a balance sheet, which includes assets, liabilities, and shareholders' equity at a specific point in time.

Solvency

The ability of a company to meet its long-term financial obligations and continue its operations into the foreseeable future.