Sheridan is contemplating a capital project costing $34584. The project will provide annual cost savings of $13000 for 3 years and have a salvage value of $3000. The company's required rate of return is 10%. The company uses straight-line depreciation. Year 1 2 3 Present Value of 1 at 10% 0.909 0.826 This project is 0.751 PV of an Annuity of 1 at 10% 0.909 1.736 2.487 acceptable because it has a positive NPV. acceptable because it has a zero NPV. O unacceptable because it earns a rate less than 10%. unacceptable because it has a negative NPV.
Sheridan is contemplating a capital project costing $34584. The project will provide annual cost savings of $13000 for 3 years and have a salvage value of $3000. The company's required rate of return is 10%. The company uses straight-line depreciation. Year 1 2 3 Present Value of 1 at 10% 0.909 0.826 This project is 0.751 PV of an Annuity of 1 at 10% 0.909 1.736 2.487 acceptable because it has a positive NPV. acceptable because it has a zero NPV. O unacceptable because it earns a rate less than 10%. unacceptable because it has a negative NPV.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Sheridan is contemplating a capital project costing $34584. The project will provide annual cost savings of $13000 for 3 years and
have a salvage value of $3000. The company's required rate of return is 10%. The company uses straight-line depreciation.
Year
1
2
3
Present Value
of 1 at 10%
This project is
0.909
0.826
0.751
PV of an Annuity
of 1 at 10%
0.909
1.736
2.487
acceptable because it has a positive NPV.
acceptable because it has a zero NPV.
unacceptable because it earns a rate less than 10%.
unacceptable because it has a negative NPV.
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