(Ignore income taxes in this problem.) The management of Kobler Corporation is investigating an investment in equipment that would have a useful life of 5 years. The company uses a discount rate of 10% in its capital budgeting. Good estimates are available for the initial investment and the annual cash operating outflows, but not for the annual cash inflows and the salvage value of the equipment. The net present value of the initial investment and the annual cash outflows is -$235,421.
-Ignoring any salvage value, 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 would have to be $62,100 to make the investment in the equipment financially attractive. This is because the net present value of the initial investment and the annual cash outflows is -$235,421, and the discount rate is 10%. Therefore, the annual cash inflow would have to be $62,100 to make the net present value of the investment zero.

(Ignore Income Taxes in This Problem