Question

The management of Osborn Corporation is investigating an investment in equipment that would have a useful life of 8 years. The company uses a discount rate of 12% in its capital budgeting. The net present value of the investment, excluding the annual cash inflow, is -$401,414. To the nearest whole dollar how large would the annual cash inflow have to be to make the investment in the equipment financially attractive

Answer 1

Answer:

$80,800

Explanation:

Calculation to determine the annual cash inflow have to be to make the investment in the equipment financially attractive

Using this formula

Annual cash flows = Negative net present value to be offset ÷ Present value factor

Let plug in the formula

Annual cash flows = $401,414 ÷ 4.968

Annual cash flows = $80,800

Therefore the annual cash inflow have to be to make the investment in the equipment financially attractive is $80,800