Question

Justice Enterprises is evaluating the purchase of a new computer net system would cost $24,000 and have a useful life of Syears. At the end of the systems of a new computer network system. The new would have a residual value of $2000. Annual operating cost savings from the new sys be $8500 per year for each of the five years of its life. Justice Enterprises has a minimum required rate of return of 12% on all new projects. The net present value of the new system would be closest to: (Round any intermediary calculations and your final nearest dollar.) savings from the new system would diary calculations and your final answer to the Present Value of $1 Periods 10% 0.751 0.683 0.621 0.564 12% 0.712 0.636 0.567 0.507 14% 0.675 0.592 0.519 0.456 16% 0.641 0.552 0.476 0.410 16% Present Value of Annuity of $1 Periods 10% 2.487 3.170 3.791 4.355 12% 2.402 3.037 3.605 4.111 14% 2.322 2.914 3.433 2.246 2.798 3.274 3.685 T 3.889 A) $5509. B) $7777 C) $6643 D) $31,777

Answer 1

Answer:

closest to: B) $7777

Explanation:

NPV ( net presetn value) cashflow - investment

cost savings present value (ordinary annuity):

$C \times \frac{1-(1+r)^{-time} }{rate} = PV$  

C   $8,500

time         5 years

rate  0.12

$8500 \times \frac{1-(1+0.12)^{-5} }{0.12} = PV$  

PV $30,640.5977  

salvage value present value:

$\frac{salvage}{(1 + rate)^{time} } = PV$  

Salvage  $2,000  

time   5

rate  0.12

$\frac{2000}{(1 + 0.12)^{5} } = PV$  

PV   1,134.85  

NPV: 30,640.60 + 1,134.85  - 24,000 = 7,775.45