(Ignore income taxes in this problem.) The following data pertain to an investme

Question

(Ignore income taxes in this problem.) The following data pertain to an investment proposal:

  Cost of the investment $40,000  
  Annual cost savings $11,000  
  Estimated salvage value $5,000  
  Life of the project 5 years  
  Discount rate 10%   

Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.

The net present value of the proposed investment is closest to: (Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount.)

$4,806
$1,701
$3,105
$24,000

Explanation / Answer

$4,806

The net present value of the proposed investment=PV of cash inflows-cash outflows

=$11,000 PVCF@10%4years+$16,000PVF5th year@10%-$40,000.

=3.1699*$11,000+0.621*16,000-$40,000

=$4,804.9~$4,806

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