Kerwin Company is considering purchase of equipment that costs $50,000.If the useful life is expected to be 5 years and Crown's required rate of return is 12%,what is the minimum annual cash inflow that the equipment must offer for the investment to be acceptable? (Do not round your intermediate calculations.Round your final answer to the nearest dollar. )

Question

Quizplus · Accepted Answer

Recall that a present value of zero suggests the investment will earn a rate of return equal to the desired rate.As such,we will set the net present value to zero to determine the minimum expected annual cash flow.
Net present value = (Expected annual cash flows x PV factor)- Cost of investment
$0 = Expected cash flows x 3.604776)- $50,000
Expected cash flows x 3.604776 = $50,000
Expected cash flows = $50,000 ÷ 3.604776 = $13,870 (rounded)
PV factor from Appendix Table 2 (n = 5,i = 12)

Kerwin Company Is Considering Purchase of Equipment That Costs $50,000