Breakeven cash inflows The One Ring Company, a leading producer of fine cast sil

Question

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 company expects 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? 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 company expects 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

Ans a) Minimum Yearly cashflow to go forward with this project is $116865.07

Ans b)  Minimum Yearly cashflow to go forward with this project is $132738.13

0 1 2 3 4 5 6 7 8 9 10 Cash outflow $(750,000.00) $ 116,865.07 $ 116,865.07 $ 116,865.07 $ 116,865.07 $ 116,865.07 $ 116,865.07 $ 116,865.07 $ 116,865.07 $ 116,865.07 $ 116,865.07 Present Value $(750,000.00) $ 107,215.66 $   98,362.99 $   90,241.28 $   82,790.16 $   75,954.28 $   69,682.82 $   63,929.20 $   58,650.64 $   53,807.92 $   49,365.07 Net Present Value $              0.02

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