Use the following information for questions 106-108.
Cleaners, Inc. is considering purchasing equipment costing $60,000 with a 6-year useful life. The equipment will provide cost savings of $14,600 and will be depreciated straight-line over its useful life with no salvage value. Cleaners requires a 10% rate of return. $\text { Present Value of an Annuity of } 1$
$\begin{array}{ll}
\text { Periods } &8\%& 9 \% & 10 \% & 11 \%& 12 \%&15\%\
5&4.623&4.486&4.355&4.231&4.111&3.784
\end{array}$

-What is the approximate net present value of this investment?
A) $27,600
B) $3,583
C) $1,772
D) $5,496

Question

Use the following information for questions 106-108.
Cleaners, Inc. is considering purchasing equipment costing $60,000 with a 6-year useful life. The equipment will provide cost savings of $14,600 and will be depreciated straight-line over its useful life with no salvage value. Cleaners requires a 10% rate of return. $\text { Present Value of an Annuity of } 1$
$\begin{array}{ll}
\text { Periods } &8\%& 9 \% & 10 \% & 11 \%& 12 \%&15\%\
5&4.623&4.486&4.355&4.231&4.111&3.784
\end{array}$

-What is the approximate net present value of this investment?
A) $27,600
B) $3,583
C) $1,772
D) $5,496

Quizplus · Accepted Answer

The net present value (NPV) is calculated by subtracting the initial investment from the present value of the cash inflows. The cash inflows are the annual cost savings of $14,600 for 6 years. Since the table does not provide a factor for 6 years at 10%, we approximate using the 5-year factor at 10%, which is 4.355. Thus, the present value of the cash inflows is $14,600 * 4.355 = $63,583. Subtracting the initial investment of $60,000 gives an NPV of approximately $3,583.

Use the Following Information for Questions 106-108 Present Value of an Annuity of 1\text { Present Value of an Annuity of } 1 Present Value of an Annuity of 1

Use the Following Information for Questions 106-108 $\text { Present Value of an Annuity of } 1$