Me and boyfriend need help with this question :/ Anyone know of an online financ
ID: 2385045 • Letter: M
Question
Me and boyfriend need help with this question :/Anyone know of an online financial calculator that will calculate things like this for me?
(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?
a. $238,486 b. $54,900 c. $38,158 d. $29,811
Explanation / Answer
(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?
a. $238,486 b. $54,900 c. $38,158 d. $29,811
Financially attractive: NPV >= 0
NPV = PV of future cash inflows - initial investment
0 = x/1.16 + x/1.16^2 + x/1.16^3 + ...+ x/1.16^8 -$238,486.
$238,486= x/1.16 + x/1.16^2 + x/1.16^3 + ...+ x/1.16^8
$238,486= x(1/1.16 + 1/1.16^2 + 1/1.16^3 + ...+ 1/1.16^8
Where a = 1/1.16, r = 1/1.16, n = 8
$238,486=X 4.34
X=$54,900