Estimates for one of two process upgrades are as follows: first cost of $40,000, annual cost of

Question:

Estimates for one of two process upgrades are as follows: first cost of $40,000, annual cost of $5000 per year, market value that decreases by $2000 per year to the salvage value of $20,000 after the expected life of 10 years. If a 4-year study period is used for AW analysis at 15% per year, the correct AW value is closest to:

(a) $–15,000

(b) $–11,900

(d) $–12,600

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...