(Ignore income taxes in this problem.) The following data pertain to an investme
ID: 2344047 • Letter: #
Question
(Ignore income taxes in this problem.) The following data pertain to an investment proposal:Cost of the investment........................................... $20,000
Annual cost savings.............................................. $5,000
Estimated salvage value......................................... $1,000
Life of the project................................................... 8 years
Discount rate....................................................... 16%
The net present value of the proposed investment is:
a. $1,720
b. $6,064
c. $2,154
d. $2,025
Explanation / Answer
NPV =-$20,000 +$5,000 /1.16+$5,000 /1.16^2 ....$5,000 /1.16^7 +$6,000 /1.16^8 =$2,024.98 d. $2,025
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