Q1. A) A piece of equipment costs $175,000. You believe it will produce an inflo
ID: 2465040 • Letter: Q
Question
Q1. A) A piece of equipment costs $175,000. You believe it will produce an inflow after operating costs of $50,000 for five years. The cost of capital is 15 percent. Calculate the NPV and determine if the proposal should be accepted or rejected.
a) ($150,141); reject this proposal because NPV is negative
b) ($7,390); reject this proposal because NPV is negative
c) $162,119; accept this proposal because NPV is positive
d) $75,000; accept this proposal because NPV is positive
B) Which of the following is not a reason for making a capital investment?
a) CEO's daughter wants a plane to fly in style to Paris
b)Keep up with changing technology
c) Replace worn-out or unproductive operating assets
d) Comply with mandates of the government
C) Which of the following is not a source of financing for a firm?
a) Selling assets of the firm
b) Earnings generated by a company (also known as Net income)
c)Debt financing
d) Owners' Contributions
Explanation / Answer
A)
b) ($7,390); reject this proposal because NPV is negative
inflows-outflows=163,426.95-175,000
NPV=($11,573.05)
B)a) CEO's daughter wants a plane to fly in style to Paris
C)b) Earnings generated by a company (also known as Net income)
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.