Johnson Corp.has an 8% required rate of return.It's considering a project that would provide annual cost savings of $50,000 for 5 years.The most that Johnson would be willing to spend on this project is $\begin{array}{rrr}& \text { Present Value } & \text { PV of an Annuity } \
\text { Year } & \text { of } 1 \text { at } 8 \% & \text { of } 1 \text { at } 8 \%\\hline
1 & .926 & .926 \
2 & .857 & 1.783 \
3 & .794 & 2.577 \
4 & .735 & 3.312 \
5 & .681 & 3.993
\end{array}$
A)$125,910.
B)$165,600.
C)$199,650.
D)$34,050.

Question

Quizplus · Accepted Answer

The present value of the cost savings is calculated using the present value of an annuity factor for 5 years at 8%, which is 3.993. Multiply $50,000 by 3.993 to get $199,650.

Johnson Corp A)$125,910