Reference: 10-06
the Becker Company Is Interested in Buying a Piece

Reference: 10-06
The Becker Company is interested in buying a piece of equipment that it needs. The following data have been assembled concerning this equipment: $$\begin{array} { | l | c | } \hline \text { Cost of required equipment } & \$ 250,000 \\\hline \text { Working capital required } & \$ 100,000 \\\hline \text { Annual operating cash inflows } & \$ 80,000 \\\hline \text { Cash repair at end of 4 years } & \$ 40,000 \\\hline \text { Salvage value at end of 6 years } & \$ 90,000 \\\hline\end{array}$$ This equipment is expected to have a useful life of 6 years. At the end of the sixth year the working capital would be released for use elsewhere. The company's discount rate is 10%.
-The present value of the net cash flows (all cash inflows less all cash outflows) occurring during year 4 is:

A) $40,000.
B) $54,640.
C) $27,320.
D) $42,790.

Correct Answer:

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