He following data pertain to an investment proposal (Ignore income taxes.): Cost of the investment $ 60,000 Annual cost savings $ 18,000 Estimated salvage value $ 7,000 Life of the project 5 years Discount rate 13 % Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using the tables provided. The net present value of the proposed investment is closest to:

$7,107

Explanation:

The Net Present value of a project is the Present value of the benefits associsted with the project minus the present value of the cost. This is a very useful tool in Project analysis.

We are given the following,

Initial cost = $60,000

Annual savings = $18,000

Salvage Value = $7,000

Discount rate = 13%.

When calculating the present value of a series of equal cashflows, it is faster to use the Present Value of an Annuity formula.

The Present Value Interest Factor of an Annuity Table is a table that calculated the present value factors at different rates for easier calculations. I have attached one here.

The project will give out equal paymensts for 5 years at 13%. Looking at the table, we see that 13% at 5 years is a factor of 3.5172.

Calculating therefore we have,

= 18,000 * 3.5172

= $63,309.60

This is the present value of the savings.

We need to take the Present Value of the Salvage Value as well as it is a benefit.

= 7,000 / ( 1+13%)^5

= 7,000 / 1.13^5

= $3,799.32

Calculating the NPV we have,

= 63,309.60 + 3,799.32 - 60,000

= $7,108.92

The Net Present Value of the proposed investment is $7,107

I have attached the complete question to show the options.

answerinsider trading

there was no passage listed but using the process of elimination i'd say it was d. the high economy would do the opposite. i don't see how low prices would affect it. high unemployment is possible but i feel d is the better answer.