When using the net present value method to compare keeping an old building or disposing it and acquiring a new building,the current cash residual value of the old building should be
A)deducted from the price paid for the new building.
B)viewed as a cash outflow.
C)added to the price of the new building.
D)irrelevant to the decision.

Question

Quizplus · Accepted Answer

The net present value method takes into account the initial cost of acquiring the new building and any cash flows associated with both the old and new building. Therefore, the current cash residual value of the old building should be deducted from the price paid for the new building, as it represents a cash inflow that reduces the net initial outflow. This ensures that the comparison accurately reflects the true cost of each option over time.

When Using the Net Present Value Method to Compare Keeping