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

Question

Croce, Inc., is investigating an investment in equipment that would have a useful life of 12 years. The company uses a discount rate of 17% in its capital budgeting. The net present value of the investment, excluding the salvage value, is ?$580,153. (Ignore income taxes.)

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using the tables provided.

How large would the salvage value of the equipment have to be to make the investment in the equipment financially attractive? (Round your intermediate calculations and final answer to the nearest whole dollar amount.)

Multiple Choice

$580,153

$98,626

$3,412,665

$3,816,796

Explanation / Answer

Minimum salvage value = Negative net present value to the offset ÷ Present value factor

= $580,153 ÷ 0.152

= $3,816,796

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