Question
Two years ago, Capricorn Inc. purchased an Asset A for $66,000. The asset yields annual operating cash flow of $20,000 for 6 years. The company
Two years ago, Capricorn Inc. purchased an Asset A for $66,000. The asset yields annual operating cash flow of $20,000 for 6 years. The company is now looking into replacing Asset A with Asset B, which will cost $75,000 and yield annual operating cash flow of $40,000 for the next 4 years. Asset A can be sold now for $30,000, but in four years' time, it will only be worth $5,000. Asset B can be sold for $8,000 in four years' time. The required rate of return is 20%. Should Capricorn replace Asset A with Asset B and what probably difference? Ignore taxes.
a.24,185.60
b. 6800.92
c. -27952.31
d. 33003.2
e. 8221.50
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