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25 April, 23:58

Deep South Sounds would like to spend $189,000 for new sound equipment. However, the company has a major loan maturing 3 years from today and needs this money at that time to avoid bankruptcy. The sound equipment is expected to increase the cash flows by $45,000 in the first year, $92,400 in the second year, and $40,000 a year for the following 3 years. Should Deep South buy the sound equipment at this time? Why or why not?

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  1. 26 April, 00:28
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    Deep South should not buy the equipment as the cash flows in three years would be $172,400 which is less than the price of the sound equipment and therefore they will not be able to pay the loan.
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