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? Ignore taxes. Multiple Choice $32,407.41 $6,774.69 -$23,225.31 $24,185.96

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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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? Ignore taxes.
Multiple Choice
$32,407.41
$6,774.69
-$23,225.31
$24,185.96
Transcribed Image Text: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? Ignore taxes. Multiple Choice $32,407.41 $6,774.69 -$23,225.31 $24,185.96
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