Asked by Raisa Anjum on Jul 25, 2024
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The following data pertain to an investment: Cost of the investment $18,955 Life of the project 5 years Annual cost savings $5,000 Estimated salvage value $1,000 Discount rate 10%\begin{array} { | l | l | } \hline \text { Cost of the investment } & \$ 18,955 \\\hline \text { Life of the project } & 5 \text { years } \\\hline \text { Annual cost savings } & \$ 5,000 \\\hline \text { Estimated salvage value } & \$ 1,000 \\\hline \text { Discount rate } & 10 \% \\\hline\end{array} Cost of the investment Life of the project Annual cost savings Estimated salvage value Discount rate $18,9555 years $5,000$1,00010% The net present value of the proposed investment is:
A) $3,355.
B) $621.
C) ($3,430) .
D) $0.
Discount Rate
The interest rate used to discount future cash flows to their present value, reflecting the time value of money.
Annual Cost Savings
The reduction in total costs achieved on an annual basis through efficiency improvements, cost-cutting measures, or operational changes.
Investment Cost
The total amount of money spent on acquiring or investing in assets, including initial setup, purchasing, and any other related costs.
- Utilize net present value (NPV) and internal rate of return (IRR) calculations for the assessment of investment opportunities.
- Conceive the significant role of the discount rate in the determination of the time value of money.
Verified Answer
Learning Objectives
- Utilize net present value (NPV) and internal rate of return (IRR) calculations for the assessment of investment opportunities.
- Conceive the significant role of the discount rate in the determination of the time value of money.
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