Question
Whitney Company is contemplating three different equipment investments. The relevant data follows: Proposal DProposal OProposal G Cost$200,000$300,000$830,000 Annual cash savings (end of year)$40,000$70,000$150,000 Terminal salvage
Whitney Company is contemplating three different equipment investments. The relevant data follows:
Proposal DProposal OProposal G
Cost$200,000$300,000$830,000
Annual cash savings (end of year)$40,000$70,000$150,000
Terminal salvage value$10,000$5,000$20,000
Estimated useful life in years101010
Minimum desired rate of return12%12%12%
Method of depreciationStraight-lineStraight-lineStraight-line
Required:
A) Compute the net present value of each investment. Ignore income taxes.
B) If only one investment can be acquired, which investment should be chosen?
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Intermediate Accounting
Authors: J. David Spiceland, James Sepe, Mark Nelson, Wayne Thomas
10th edition
1260481956, 1260310175, 978-1260481952
