Question

How would the salvage value be treated in a net present value calculation?A, Disregard the salvageB. As a positive cash flow in the final year that the asset is usedC. As a negative cash flow in the final year that the asset is usedD. As a negative cash flow in the first year that the asset is used

Answer 1

The salvage value would be treated as a positive cash flow in the final year that the asset is used in a net present value calculation.

Step-by-step explanation:

In a net present value (NPV) calculation, the salvage value would typically be treated as a positive cash flow in the final year that the asset is used (option B). The salvage value represents the estimated value of the asset at the end of its useful life, and it is included as part of the total cash flows in order to determine the net present value of the investment.

Answer 2

The salvage value in a net present value calculation is treated as a positive cash flow in the final year the asset is used and is discounted back to its present value.

Step-by-step explanation:

In a net present value calculation, the salvage value of an asset should be treated as a positive cash flow in the final year that the asset is used. This is because the salvage value represents an inflow of cash that the company will receive from disposing of the asset at the end of its useful life. When calculating the present discounted value, this positive cash flow will be discounted back to its present value, usually with the help of a discount rate corresponding to the cost of capital or rate of return.