Question
Whitney Company is contemplating three different equipment investments. The relevant data follows: Proposal D Proposal O Proposal G Cost- 200,000 300,000 830,000 Annual cash savings
Whitney Company is contemplating three different equipment investments. The relevant data follows:
Proposal D Proposal O Proposal 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 years- 10 10 10
Minimum desired rate of return- 12% 12% 12%
Method of depreciation- Straight Line Straight Line Straight Line The present value factor of an ordinary annuity of one for 10 periods at 12% is 5.6502. The present value factor of one for 10 periods at 12% is 0.322.
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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