Boyson, Inc. is investigating an investment in equipment that would have a usefu

Question

Boyson, Inc. is investigating an investment in equipment that would have a useful life of 7 years. The company uses a discount rate of 15% in its capital budgeting. The net present value of the investment, excluding the salvage value, is -$580,108. (Ignore income taxes this problem.) Click here to view Exhibit 13B-1 to determine the appropriate discount factor(s) using tables. How large would the salvage value of the equipment have to be to make the investment in the equipment financially attractive? (Round discount factor(s) to 3 decimal places and final answers to the nearest dollar amount.) $3,867,387 $87,016 $580,108 $1,542,840

Explanation / Answer

Minimum salvage value = NPV/ PV of $1 for 7 years at 15%

                                            = - 580,108/.376

                                            = 1,542,840 answer

Minimum salvage value = NPV/ PV of $1 for 7 years at 15%

                                            = - 580,108/.376

                                            = 1,542,840 answer

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