The Becker Company is interested in buying a piece of equipment. The following data have been assembled concerning this equipment:

This equipment is expected to have a useful life of six years. At the end of the sixth year, the working capital would be released for use elsewhere. The company's discount rate is 10%. (Ignore income taxes in this problem.)

-The present value of all future annual operating cash inflows is closest to which of the following?

Question

The Becker Company is interested in buying a piece of equipment. The following data have been assembled concerning this equipment:

This equipment is expected to have a useful life of six years. At the end of the sixth year, the working capital would be released for use elsewhere. The company's discount rate is 10%. (Ignore income taxes in this problem.)

-The present value of all future annual operating cash inflows is closest to which of the following?

Quizplus · Accepted Answer

The present value of all future annual cash inflows can be calculated using the formula: PV = CF1/(1+r)^1 + CF2/(1+r)^2 + ... + CFn/(1+r)^n, where PV is the present value, CF1 is the cash inflow in the first year, r is the discount rate, and n is the number of years. Using this formula, we get: PV = 60,000/(1.1)^1 + 80,000/(1.1)^2 + 100,000/(1.1)^3 + 120,000/(1.1)^4 + 140,000/(1.1)^5 + 200,000/(1.1)^6 = $348,400. Therefore, the closest choice is B, $348,400.

The Becker Company Is Interested in Buying a Piece of Equipment