(Ignore income taxes in this problem) Digrande Corporation is investigating buyi

Question

(Ignore income taxes in this problem) Digrande Corporation is investigating buying a small used aircraft for the use of its executives. The aircraft would have a useful life of 6 years. The company uses a discount rate of 12% in its capital budgeting. The net present value of the investment, excluding the salvage value of the aircraft, is -$250,113. Management is having difficulty estimating the salvage value of the aircraft. To the nearest whole dollar how large would the salvage value of the aircraft have to be to make the investment in the aircraft financially attractive?



a. $30,014 b. $2,084,275 c. $250,113 d. $493,320

Explanation / Answer

Ans: $493,320

REASON:-

Salvage value should be $493,320 because by adding this amount to the present NPV it become positive value (-250,113 + 493,320 = $243,207) as per NPV rule the project with positive NPV will be selected.

So this makes the investment in the aircraft financially attractive.

HOPE THIS HELPS

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