(Ignore income taxes in this problem.) The management of Bischke Corporation is investigating an investment in equipment that would have a useful life of 8 years. The company uses a discount rate of 16% 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 -$238,486.
-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

To calculate the required annual cash inflow, we need to set the NPV equal to zero and solve for the annual cash inflow. Since the NPV is initially negative, we know we need a positive cash inflow to make it financially attractive. Solving for the annual cash inflow gives us $54,900, which is option B.

(Ignore Income Taxes in This Problem