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 $752,000. The company expects that the equipment will produce steady income throughout its 10-year life. a. If One Ring requires a 1 1 % 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 14% return on its investment? a ne Ring requires a 11% return on its investment, the minimum yearly cash inflow will be S Round to the nearest cent.

Explanation / Answer

a.

Using financial calculator BA II Plus - Input details:

#

FV = Future Value =

$0.00

PV = Present Value =

-$752,000.00

I/Y = Rate / Frequency =

11.000000

N = Number of years x frequency =

10

CPT > PMT = Payment = Yearly cash flow =

$127,690.67

b.

Using financial calculator BA II Plus - Input details:

#

FV = Future Value =

$0.00

PV = Present Value =

-$752,000.00

I/Y = Rate / Frequency =

14.000000

N = Number of years x frequency =

10

CPT > PMT = Payment = Yearly cash flow =

$144,168.58

With change in interest rate cash flow changed by $16,477.91

Using financial calculator BA II Plus - Input details:

#

FV = Future Value =

$0.00

PV = Present Value =

-$752,000.00

I/Y = Rate / Frequency =

11.000000

N = Number of years x frequency =

10

CPT > PMT = Payment = Yearly cash flow =

$127,690.67

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