Question

Johnson Corp. has an 8% required rate of return. It’s considering a project that would provide annual cost savings of $50,000 for 5 years. The most that Johnson would be willing to spend on this project is Present Value PV of an Annuity Year of 1 at 8% of 1 at 8%

1 .926 .9262 .857 1.7833 .794 2.5774 .735 3.3125 .681 3.993A) $165,600.B) $125,910.C)$199,650.D)$34,050.

Answer 1

C)$199,650

Step-by-step explanation:

The computation of the spending amount is shown below:

= Annual cost savings × PVIFA (8%, 5 years)

where,

Annual cost saving is $50,000

PVIFA = 3.993

Now put these values to the above formula

So, the value would be equal to

= $50,000 × 3.993

= $199,650

Simply we multiply the annual cost saving with the PVIFA so that the true amount can come.