Concose Park Department is considering a new capital investment. The following i

Question

Concose Park Department is considering a new capital investment. The following information is available on the investment. The cost of the machine will be $260,000.

The annual cost savings if the new machine is acquired will be $135,000.

The machine will have a 6?year ?life, at which time the terminal disposal value is expected to be $39,000.

Concose Park Department is assuming no tax consequences. If Concose Park Department has a required rate of return of 12?%, which of the following is closest to the present value of the?project?

A. $343,657

B. $294,985

C. $314,758

D. $38,672

Explanation / Answer

Present value of annual cost savings 554985 =135000*4.111 Present value of salvage value 19773 =39000*0.507 Less: Investment cost 260000 Present value of the? project 314758 Option C is correct

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