25. 3.70 points (Ignore income taxes in this problem) The following data pertain

Question

25. 3.70 points (Ignore income taxes in this problem) The following data pertain to an investment proposal Cost of the investment Annual cost sa Estimated salvage value Life of the project Discount rate $44,000 $14,000 $3,000 13% Click here to view Exhibit 118-1 and Exhibit 118-2. to determine the appropriate discount factorts) using tobles The net present value of the proposed investment is closest to (Round discount factorts) to 3 decimel pleces intermediate and finel answers to the nearest dollar amount.) O $6,867 O $5.238 $1.629 O$27.000 IBI

Explanation / Answer

Net present value (NPV) is the difference of present value of cash inflows and cost of investment.

NPV table

Year

Cash flow (CF)

13% discount factor (F) = 1 / (1.13)^n

PV = CF × F

0

-44,000

1

-44,000

1

14,000

0.885

12,390

2

14,000

0.783

10,962

3

14,000

0.693

9,702

4

14,000

0.613

8582

5

17,000

0.543

9,231

NPV

6,867

Note: In the year 5, cash flow is the aggregate of salvage value and yearly cost savings.

Answer: 1st option

Year

Cash flow (CF)

13% discount factor (F) = 1 / (1.13)^n

PV = CF × F

0

-44,000

1

-44,000

1

14,000

0.885

12,390

2

14,000

0.783

10,962

3

14,000

0.693

9,702

4

14,000

0.613

8582

5

17,000

0.543

9,231

NPV

6,867

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