Question

Question text

Equipment should be retired when:

Select one:

a. the net present value of future cash flows is equal to or more than zero

b. it is in poor condition

c. the net present value of future cash flows is negative

d. a better model becomes available

Answer 1

When net present value of future cash flow related to an equipment is negative that means that equipment is not generating income for the company and it is costing the company on the negative side, so it is acting like a burden to the company and hence it must be retired.

When the net present value is positive or greater than zero, it should still be used because it is generating income or even if it is in poor condition or better model becomes available,it should never be retired until it is generating negative cash flow.

Hence the correct answer is option( C) the net present value of future cash flow is negative.