Baghdad Arts, Inc., a leading producer of fine cast silver jewelry, is considering the purchase of new casting equipment that will allow it to expand the product line into award plaques. The proposed initial investment is US$35,000. The company expects that the equipment will produce steady income throughout its 12­year life.
a. If Baghdad requires a 14 percent return on its investment, what minimum yearly cash inflow will be necessary for the company to go forward with this project?
b. How would the minimum yearly cash inflow change if the company required a 10 percent return on its investment?