Asked by Chevelle Rhule on Jul 04, 2024
Verified
Ignoring any cash flows from intangible benefits, to the nearest whole dollar how large would the salvage value of the automated equipment have to be to make the investment in the automated equipment financially attractive?
A) $495,561
B) $28,009
C) $155,606
D) $864,478
Automated Equipment
Machinery that operates with minimal human intervention, often used to increase production efficiency and consistency.
Salvage Value
The estimated residual value of an asset at the end of its useful life, often considered in depreciation calculations.
Financially Attractive
A term describing investments, projects, or acquisitions that are appealing due to their potential for financial return or profitability.
- Acquire the ability to assess the financial appeal of an investment by examining its salvage value.
Verified Answer
= $155,606 ÷ 0.314 = $495,561
Reference: CH12-Ref17
(Ignore income taxes in this problem.)The management of Hansley Corporation is investigating an investment in equipment that would have a useful life of 5 years.The company uses a discount rate of 18% 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 -$273,300.
Learning Objectives
- Acquire the ability to assess the financial appeal of an investment by examining its salvage value.
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