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The following data pertain to an investment proposal (Ignore income taxes.): Cost of the investment $ 56,000 Annual cost savings $ 16,000 Estimated salvage value $ 6,000 Life of the project 5 years Discount
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The following data pertain to an investment proposal (Ignore income taxes.): Cost of the investment $ 56,000 Annual cost savings $ 16,000 Estimated salvage value $ 6,000 Life of the project 5 years Discount rate 10 % Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using the tables provided. The net present value of the proposed investment is closest to: (Round your intermediate calculations and final answer to the nearest whole dollar amount.) Multiple Choice $34,000 $4,656 $3,726 $8,382

User Ainokna
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27 votes

Answer: $8,382

Step-by-step explanation:

First find the present value of the cash benefits which are the cost savings and the salvage value:

= (Cost savings * Present value interest factor of annuity, 5 years, 10%) + Salvage value / ( 1 + rate) ^ no of periods

= (16,000 * 3.7908) + 6,000 / ( 1 + 10%)⁵

= $64,378

Net Present value = Present value of benefits - Cost of investment

= 64,378 - 56,000

= $8,378

= $8,382 from options. Difference due to rounding errors.

The following data pertain to an investment proposal (Ignore income taxes.): Cost-example-1
User Curious Slab
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