The management of Gimenez Corporation is investigating an investment in equipmen
ID: 2381467 • Letter: T
Question
The management of Gimenez Corporation is investigating an investment in equipment that would have a useful life of 7 years. The company uses a discount rate of 17% 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 -$274,265.
10. 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. $39,181
B. $274,265
C. $46,625
D. $69,930
11. Ignoring the cash inflows, to the nearest whole dollar how large would the salvage value of the equipment have to be to make the investment in the equipment financially attractive?
A. $274,265
B. $46,625
C. $1,613,324
D. $823,619
Explanation / Answer
10. 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?
PV factor for an annuity for 7 years, 17% = 3.922
274,265/3.922 = 69930
Answer: D, $69,930
11. Ignoring the cash inflows, to the nearest whole dollar how large would the salvage value of the equipment have to be to make the investment in the equipment financially attractive?
PV factor for a lump sum in 7 years, 17% = .333
274,265/.333 = 823,619
Answer: D, $823,619
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.