Asked by
Vasavi srinivas
on Oct 10, 2024
Verified
(Ignore income taxes in this problem) The management of Osborn Corporation is investigating an investment in equipment that would have a useful life of 8 years.The company uses a discount rate of 12% in its capital budgeting.The net present value of the investment, excluding the annual cash inflow, is -$401,414.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) $48,170
B) $50,177
C) $80,800
D) $401,414
Discount Rate
In finance, this rate is used to calculate the present value of future cash flows; in a broader context, it can also refer to the interest rate charged by banks to their most creditworthy customers.
Annual Cash Inflow
The total amount of money received from operations, investments, and financing activities within a year.
Net Present Value
A financial metric that calculates the difference between the present value of cash inflows and the present value of cash outflows over a period of time.
- Comprehend the principle and computation of Net Present Value (NPV) and its significance in determining capital budgeting choices.
- Understand the significance of cash inflows and outflows in establishing the feasibility of a project.
Verified Answer
ZJ
Learning Objectives
- Comprehend the principle and computation of Net Present Value (NPV) and its significance in determining capital budgeting choices.
- Understand the significance of cash inflows and outflows in establishing the feasibility of a project.