Breakeven cash inflows The One Ring Company, a leading producer of fine cast sil
ID: 2383509 • Letter: B
Question
Breakeven cash inflows
The One Ring Company, a leading producer of fine cast silver
expects that the equipment will produce steady income throughout its 10-year life.
b. How would the minimum yearly cash inflow change if the company required a
Breakeven cash inflows
The One Ring Company, a leading producer of fine cast silver
jewelry, is considering the purchase of new casting equipment that will allow it to expand its product line. The up-front cost of the equipment is $750,000. The companyexpects that the equipment will produce steady income throughout its 10-year life.
a. If One Ring requires a 9% return on its investment, what minimum yearly cash inflow will be necessary for the company to go forward with this project?b. How would the minimum yearly cash inflow change if the company required a
12% return on its investment?Explanation / Answer
1
No of period
10
Required rate
9%
Investment
750000
Present value of Annuity
6.41766
Yearly cash flow 750000/6.41766
1,16,865
2
No of period
10
Required rate
12%
Yearly cash flow
7,50,000
Present value of Annuity
5.65022
Yearly cash flow
132738
1
No of period
10
Required rate
9%
Investment
750000
Present value of Annuity
6.41766
Yearly cash flow 750000/6.41766
1,16,865
2
No of period
10
Required rate
12%
Yearly cash flow
7,50,000
Present value of Annuity
5.65022
Yearly cash flow
132738