X Company is planning to drop a department that has shown a loss over the past f

Question

X Company is planning to drop a department that has shown a loss over the past few years. Its accountant estimates that the savings from dropping the department will be $20,700 a year for the next 7 years. The accountant also believes that the company will be able to immediately sell some equipment that was used in the department for $11,000. Assuming a discount rate of 4%, what is the net present value of dropping the department?

(The answer is not 880689.80 or 869610. I've already tried and still can't get the answer)

Explanation / Answer

Savings from dropping the department = $20700

discounting rate = 4%

present value factor = 6.0021

present value of saving from dropping the department = 6.0021 * 20700 = 124243.5

sale of department equipment = $11000

net present value of dropping the departemnt = 135243.5

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