Question

Croce, Inc., is investigating an investment in equipment that would have a useful life of 9...

Croce, Inc., is investigating an investment in equipment that would have a useful life of 9 years. The company uses a discount rate of 16% in its capital budgeting. The net present value of the investment, excluding the salvage value, is −$578,586. (Ignore income taxes.)

Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided.

How large would the salvage value of the equipment have to be to make the investment in the equipment financially attractive?

A. $578,586

B. $92,574

C. $3,616,163

D. $2,199,947

Homework Answers

Answer #1

Net present value excluding salvage value = -$578,586

Interest rate (i) = 16%

Time period (n) = 9 year

Salvage value = ?

Since Net present value of the investment is -$578,586, hence present value of salvage value must be $578,586 to make the investment financially attractive.

Present value of salvage value = Salvage value x PVF (i%, n)

578,586 = Salvage value x PVF (16%, 9)

578,586 = Salvage value x 0.263

Salvge value = 578,586/0.263

= $2,199,947

Correct option is (D)

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The management of Byrge Corporation is investigating buying a small used aircraft to use in making...
The management of Byrge Corporation is investigating buying a small used aircraft to use in making airborne inspections of its above-ground pipelines. The aircraft would have a useful life of 6 years. The company uses a discount rate of 20% in its capital budgeting. The net present value of the investment, excluding the intangible benefits, is −$474,420. (Ignore income taxes.) Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using the tables provided. How...
The management of Byrge Corporation is investigating buying a small used aircraft to use in making...
The management of Byrge Corporation is investigating buying a small used aircraft to use in making airborne inspections of its above-ground pipelines. The aircraft would have a useful life of 4 years. The company uses a discount rate of 10% in its capital budgeting. The net present value of the investment, excluding the intangible benefits, is −$316,880. (Ignore income taxes.) Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using the tables provided. How...
quiz 3 Devon Corporation uses a discount rate of 8% in its capital budgeting. Partial analysis...
quiz 3 Devon Corporation uses a discount rate of 8% in its capital budgeting. Partial analysis of an investment in automated equipment with a useful life of 6 years has thus far yielded a net present value of ?$497,341. This analysis did not include any estimates of the intangible benefits of automating this process nor did it include any estimate of the salvage value of the equipment. (Ignore income taxes.) Click here to view Exhibit 13B-1 and Exhibit 13B-2 to...
TB Problem Qu. 13-171 Devon Corporation uses a discount... Devon Corporation uses a discount rate of...
TB Problem Qu. 13-171 Devon Corporation uses a discount... Devon Corporation uses a discount rate of 8% in its capital budgeting. Partial analysis of an investment in automated equipment with a useful life of 8 years has thus far yielded a net present value of −$498,941. This analysis did not include any estimates of the intangible benefits of automating this process nor did it include any estimate of the salvage value of the equipment. (Ignore income taxes.) Click here to...
Jojola Corporation is investigating buying a small used aircraft for the use of its executives. The...
Jojola Corporation is investigating buying a small used aircraft for the use of its executives. The aircraft would have a useful life of 5 years. The company uses a discount rate of 13% in its capital budgeting. The net present value of the initial investment and the annual operating cash cost is –$439,238. Management is having difficulty estimating the annual benefit of having the aircraft and estimating the salvage value of the aircraft. (Ignore income taxes.) See separate Exhibit 13B-1...
36 The management of Penfold Corporation is considering the purchase of a machine that would cost...
36 The management of Penfold Corporation is considering the purchase of a machine that would cost $310,000, would last for 6 years, and would have no salvage value. The machine would reduce labor and other costs by $60,000 per year. The company requires a minimum pretax return of 12% on all investment projects. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided. The net present value of the proposed project...
Welch Corporation is planning an investment with the following characteristics (Ignore income taxes.): Useful life 6...
Welch Corporation is planning an investment with the following characteristics (Ignore income taxes.): Useful life 6 years Yearly net cash inflow $ 60,000 Salvage value $ 0 Internal rate of return 16 % Required rate of return 12 % Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using the tables provided. The initial cost of the equipment is closest to: A)Cannot be determined from the given information. B) $221,100 C) $231,450 D) $300,100
Ataxia Fitness Center is considering an investment in some additional weight training equipment. The equipment has...
Ataxia Fitness Center is considering an investment in some additional weight training equipment. The equipment has an estimated useful life of 4 years with no salvage value at the end of the 4 years. Ataxia's internal rate of return on this equipment is 7%. Ataxia's discount rate is also 7%. The payback period on this equipment is closest to (Ignore income taxes.): Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using the tables...
Joanette, Inc., is considering the purchase of a machine that would cost $520,000 and would last...
Joanette, Inc., is considering the purchase of a machine that would cost $520,000 and would last for 7 years, at the end of which, the machine would have a salvage value of $52,000. The machine would reduce labor and other costs by $112,000 per year. Additional working capital of $6,000 would be needed immediately, all of which would be recovered at the end of 7 years. The company requires a minimum pretax return of 14% on all investment projects. (Ignore...
Ursus, Inc., is considering a project that would have a five-year life and would require a...
Ursus, Inc., is considering a project that would have a five-year life and would require a $775,000 investment in equipment. At the end of five years, the project would terminate and the equipment would have no salvage value. The project would provide net operating income each year as follows (Ignore income taxes.): Sales $ 1,900,000 Variable expenses 1,300,000 Contribution margin 600,000 Fixed expenses: Fixed out-of-pocket cash expenses $ 350,000 Depreciation 155,000 505,000 Net operating income $ 95,000 Click here to...