You are planning to invest $12,000 in new equipment. The investment will generate cost savings of $8,000 a year for two years, after that the salvage value is zero. The cost of capital is 25% a year. Compute the net present value (NPV).

You are planning to invest $12,000 in new equipment. The investment will generate cost savings of $8,000 a year for two years, after that the salvage value is zero. The cost of capital is 25% a year. Compute the net present value (NPV).

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

You are planning to invest $12,000 in new equipment. The investment will generate
cost savings of $8,000 a year for two years, after that the salvage value is zero. The
cost of capital is 25% a year.
Compute the net present value (NPV).
O $23,520
O $4,000
O $11,520
($480)
$28,000

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