Question

Concord is contemplating a capital project costing $32838. The project will provide annual cost savings of $12600 for 3 years and have a salvage value of $2000. The company's required rate of return is 10%. The company uses straight-line depreciation. What is the present value (PV) of the project?

1) $32838
2) $12600
3) $2000
4) Cannot be determined

Answer 1

The present value (PV) of the project can be calculated using the formula: PV = [Annual cost savings / (1 + Required rate of return)] + [Salvage value / (1 + Required rate of return)^3]. Using the given values, the PV of the project is calculated as: PV = [12600 / (1 + 0.10)] + [2000 / (1 + 0.10)^3]. The PV of the project is $10,909.09.

The present value (PV) of the project can be calculated using the formula:

PV = [Annual cost savings / (1 + Required rate of return)] + [Salvage value / (1 + Required rate of return)^3]

Using the given values, the PV of the project is calculated as:

PV = [12600 / (1 + 0.10)] + [2000 / (1 + 0.10)^3]

Simplifying the calculation gives a PV of $10,909.09. Therefore, the PV of the project is not one of the options provided.