Question
XYZ Company is considering the purchase of a new piece of equipment and has gathered the following information about the purchase: Initial investment ................ ?
XYZ Company is considering the purchase of a new piece of equipment and has gathered the following information about the purchase: Initial investment ................ ? Annual cost savings ............... $20,000 Salvage value in 6 years .......... 20% of original cost of the equipment Repair in 4 years ................. $11,000 Cost of capital ................... 10% Life of project ................... 6 years If the new piece of equipment is purchased then the equipment currently being used can be sold at the time of purchase of the new equipment for $7,000. The net present value of this investment was calculated to be -$28,730.
Calculate the salvage value for this piece of equipment. Do not use decimals in your answer. Ignore income tax effects.
Using the table below
Present Value of a Lump-Sum |
Rate of interest per period in percent | ||||||||||
Periods | 3% | 5% | 8% | 9% | 10% | 12% | 14% | 15% | 16% | 20% |
1 | 0.9709 | 0.9524 | 0.9259 | 0.9174 | 0.9091 | 0.8929 | 0.8772 | 0.8696 | 0.8621 | 0.8333 |
2 | 0.9426 | 0.9070 | 0.8573 | 0.8417 | 0.8265 | 0.7972 | 0.7695 | 0.7561 | 0.7432 | 0.6944 |
3 | 0.9151 | 0.8638 | 0.7938 | 0.7722 | 0.7513 | 0.7118 | 0.6750 | 0.6575 | 0.6407 | 0.5787 |
4 | 0.8885 | 0.8227 | 0.7350 | 0.7084 | 0.6830 | 0.6355 | 0.5921 | 0.5718 | 0.5523 | 0.4823 |
5 | 0.8626 | 0.7835 | 0.6806 | 0.6499 | 0.6209 | 0.5674 | 0.5194 | 0.4972 | 0.4761 | 0.4019 |
6 | 0.8375 | 0.7462 | 0.6311 | 0.5963 | 0.5645 | 0.5066 | 0.4556 | 0.4323 | 0.4104 | 0.3349 |
7 | 0.8131 | 0.7107 | 0.5835 | 0.5470 | 0.5132 | 0.4523 | 0.3996 | 0.3759 | 0.3538 | 0.2791 |
8 | 0.7894 | 0.6768 | 0.5403 | 0.5019 | 0.4665 | 0.4039 | 0.3506 | 0.3269 | 0.3050 | 0.2326 |
9 | 0.7664 | 0.6446 | 0.5003 | 0.4604 | 0.4241 | 0.3606 | 0.3075 | 0.2843 | 0.2630 | 0.1938 |
10 | 0.7441 | 0.6139 | 0.4632 | 0.4224 | 0.3855 | 0.3220 | 0.2697 | 0.2472 | 0.2267 | 0.1615 |
12 | 0.7014 | 0.5568 | 0.3971 | 0.3555 | 0.3186 | 0.2567 | 0.2076 | 0.1869 | 0.1685 | 0.1122 |
15 | 0.6419 | 0.4810 | 0.3152 | 0.2745 | 0.2394 | 0.1827 | 0.1401 | 0.1229 | 0.1079 | 0.0649 |
16 | 0.6232 | 0.4581 | 0.2919 | 0.2519 | 0.2176 | 0.1631 | 0.1229 | 0.1069 | 0.0930 | 0.0541 |
17 | 0.6050 | 0.4363 | 0.2703 | 0.2311 | 0.1978 | 0.1456 | 0.1078 | 0.0929 | 0.0802 | 0.0471 |
18 | 0.5874 | 0.4155 | 0.2503 | 0.2120 | 0.1799 | 0.1300 | 0.0946 | 0.0808 | 0.0691 | 0.0376 |
19 | 0.5703 | 0.3957 | 0.2317 | 0.1945 | 0.1635 | 0.1161 | 0.0829 | 0.0703 | 0.0596 | 0.0313 |
20 | 0.5537 | 0.3769 | 0.2146 | 0.1784 | 0.1486 | 0.1037 | 0.0728 | 0.0611 | 0.0514 | 0.0261 |
21 | 0.5375 | 0.3589 | 0.1987 | 0.1637 | 0.1351 | 0.0926 | 0.0638 | 0.0531 | 0.0443 | 0.0217 |
24 | 0.4920 | 0.3101 | 0.1577 | 0.1264 | 0.1015 | 0.0659 | 0.0431 | 0.0349 | 0.0284 | 0.0126 |
25 | 0.4776 | 0.2953 | 0.1460 | 0.1160 | 0.0923 | 0.0588 | 0.0378 | 0.0304 | 0.0245 | 0.0105 |
Present Value of Annuity Table
Periods | 3% | 5% | 8% | 9% | 10% | 12% | 14% | 15% | 16% | 20% |
1 | 0.9709 | 0.9524 | 0.9259 | 0.9174 | 0.9091 | 0.8929 | 0.8772 | 0.8696 | 0.8621 | 0.8333 |
2 | 1.9135 | 1.8594 | 1.7833 | 1.7591 | 1.7355 | 1.6901 | 1.6467 | 1.6257 | 1.6052 | 1.5278 |
3 | 2.8286 | 2.7233 | 2.5771 | 2.5313 | 2.4869 | 2.4018 | 2.3216 | 2.2832 | 2.2459 | 2.1065 |
4 | 3.7171 | 3.5460 | 3.3121 | 3.2397 | 3.1699 | 3.0374 | 2.9137 | 2.8550 | 2.7982 | 2.5887 |
5 | 4.5797 | 4.3295 | 3.9927 | 3.8897 | 3.7908 | 3.6048 | 3.4331 | 3.3522 | 3.2743 | 2.9906 |
6 | 5.4172 | 5.0757 | 4.6229 | 4.4859 | 4.3553 | 4.1114 | 3.8887 | 3.7845 | 3.6847 | 3.3255 |
7 | 6.2303 | 5.7864 | 5.2064 | 5.0330 | 4.8684 | 4.5638 | 4.2883 | 4.1604 | 4.0386 | 3.6046 |
8 | 7.0197 | 6.4632 | 5.7466 | 5.5348 | 5.3349 | 4.9676 | 4.6389 | 4.4873 | 4.3436 | 3.8372 |
9 | 7.7861 | 7.1078 | 6.2469 | 5.9953 | 5.7590 | 5.3283 | 4.9464 | 4.7716 | 4.6065 | 4.0310 |
10 | 8.5302 | 7.7217 | 6.7101 | 6.4177 | 6.1446 | 5.6502 | 5.2161 | 5.0188 | 4.8332 | 4.1925 |
12 | 9.9540 | 8.8633 | 7.5361 | 7.1607 | 6.8137 | 6.1944 | 5.6603 | 5.4206 | 5.1971 | 4.4392 |
15 | 11.9379 | 10.3797 | 8.5595 | 8.0607 | 7.6061 | 6.8109 | 6.1422 | 5.8474 | 5.5755 | 4.6755 |
16 | 12.5611 | 10.8378 | 8.8514 | 8.3126 | 7.8237 | 6.9740 | 6.2651 | 5.9542 | 5.6685 | 4.7296 |
17 | 13.1661 | 11.2741 | 9.1216 | 8.5436 | 8.0215 | 7.1196 | 6.3729 | 6.0472 | 5.7487 | 4.7746 |
18 | 13.7535 | 11.6896 | 9.3719 | 8.7556 | 8.2014 | 7.2497 | 6.4674 | 6.1280 | 5.8178 | 4.8122 |
19 | 14.3238 | 12.0853 | 9.6036 | 8.9501 | 8.3649 | 7.3658 | 6.5504 | 6.1982 | 5.8775 | 4.8435 |
20 | 14.8775 | 12.4622 | 9.8182 | 9.1286 | 8.5135 | 7.4694 | 6.6231 | 6.2593 | 5.9288 | 4.8696 |
21 | 15.4150 | 12.8212 | 10.0168 | 9.2922 | 8.6487 | 7.5620 | 6.6870 | 6.3125 | 5.9731 | 4.8913 |
25 | 17.4132 | 14.0939 | 10.6748 | 9.8226 | 9.0770 | 7.8431 | 6.8729 | 6.4641 | 6.0971 | 4.9476 |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started