Final answer:
To make the investment financially attractive, the salvage value of the equipment would have to be approximately $1,538,713.
Step-by-step explanation:
To determine the salvage value of the equipment that would make the investment financially attractive, we need to calculate the present value of its net cash flows. The net present value excluding the salvage value is -$578,556. We can use the present value tables to determine the appropriate discount factor.
Since the equipment has a useful life of 7 years, we need to find the present value of the cash flows for 7 years.
If the salvage value is x, then the net cash flow for the last year would be the salvage value minus the original investment. So, the net cash flow for the seventh year would be x - $578,556.
Using the present value tables, we can find the discount factor for 7 years at a discount rate of 15%. We can then multiply this factor by the net cash flow for the seventh year to calculate the present value. The present value should be equal to -$578,556.
Setting up this equation, we have:
(x - $578,556) / (1.15^7) = -$578,556
Solving for x, we get:
x = -$578,556 * (1.15^7) + $578,556
Calculating this expression, we find that the salvage value of the equipment would have to be approximately $1,538,713 for the investment to be financially attractive.