The following data pertain to an investment proposal: Cost of the investment $34,000 Annual...
Question:
The following data pertain to an investment proposal:
| Cost of the investment | $34,000 |
| Annual cost savings | $10,000 |
| Estimated salvage value | $5,000 |
| Life of the project | 5 years |
| Discount rate | 11% |
The net present value of the proposed investment is closest to:
a. $2,965
b. $19,000
c. $5,925
d. $2,960
NPV
NPV or net present value is a measure used in capital budgeting for evaluating long term projects involving considerable investments it based on the concept of time value of money because the cashflows of a project occur at different points in time.
Answer and Explanation: 1
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View this answerNPV = PV of cash inflows- inital outflow
{eq}PV of inflows = \frac{E(1-(1+r)^-p)}{r} {/eq}
Where
E= annual savings = $10000
r = discount rate...
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Evaluating a Budget Using the Net Present Value Method
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Chapter 14 / Lesson 3
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The net present value (NPV) method considered future cash flows to evaluate the value of capital projects—those that increase or decrease an enterprise's value. Learn how this method is calculated and guides budget decisions.
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