Explain your answers a an initial lease payment of

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Unformatted text preview: $80,000 for a major research and development program. d. An $80,000 investment in a portfolio of marketable securities. e. A $300 outlay for an office machine. f. An outlay of $2,000 for a new machine tool. g. An outlay of $240,000 for a new building. h. An outlay of $1,000 for a marketing research report. CHAPTER 8 LG2 8–2 Capital Budgeting Cash Flows 381 Basic terminology A firm is considering the following three separate situations. Situation A Build either a small office building or a convenience store on a parcel of land located in a high-traffic area. Adequate funding is available, and both projects are known to be acceptable. The office building requires an initial investment of $620,000 and is expected to provide operating cash inflows of $40,000 per year for 20 years. The convenience store is expected to cost $500,000 and to provide a growing stream of operating cash inflows over its 20year life. The initial operating cash inflow is $20,000, and it will increase by 5% each year. Situation B Replace a machine with a new one that requires a $60,000 initial investment and will provide operating...
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This document was uploaded on 01/19/2014.

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