(Ignore income taxes in this problem) The management of Malit Corporation is investigating an investment in equipment that would have a useful life of 9 years. The company uses a discount rate of 17% in its capital budgeting. The net present value of the investment, excluding the annual cash inflow, is -$367,742. To the nearest whole dollar how large would the annual cash inflow have to be to make the investment in the equipment financially attractive?

Question

Quizplus · Accepted Answer

The annual cash inflow required to make the investment financially attractive can be calculated using the formula: 
Annual cash inflow = NPV / PVIFA 
where NPV is the net present value of the investment (which is given as -$367,742) and PVIFA is the present value interest factor of an annuity, which can be looked up in a table or calculated using a formula. At a discount rate of 17% for 9 years, the PVIFA is 4.7321. 
Substituting the values in the formula, we get: 
Annual cash inflow = -$367,742 / 4.7321
Annual cash inflow = -$77,734.54 (rounded to nearest dollar)
Since the annual cash inflow cannot be negative, we take the absolute value of the result, which is $77,735. 
The closest option to this value is option B, $82,620, which is the correct answer.

(Ignore Income Taxes in This Problem) the Management of Malit