(Ignore income taxes in this problem.) Given the following data:$\begin{array}{lrr}
\text { Present investment required. } &£ 10,000\
\text {Net present value. } &£ 1,300\
\text {Annual cost savings. } &£?\
\text { Dis count rate. } &14 \%\
\text {Life of the project. } &\text { 8 years } \
\end{array}$

Based on the data given, the annual cost savings would be (rounded)

A)£4,024.
B)£2,436.
C)£1,875.
D)£3,704.

Question

(Ignore income taxes in this problem.) Given the following data:$\begin{array}{lrr}
  \text { Present investment required. } &£ 10,000\
 \text {Net present value.  } &£ 1,300\
 \text {Annual cost savings.  } &£?\
 \text { Dis count rate. } &14 \%\
 \text {Life of the project.  } &\text { 8 years } \
\end{array}$

Based on the data given, the annual cost savings would be (rounded)

A)£4,024.
B)£2,436.
C)£1,875.
D)£3,704.

Quizplus · Accepted Answer

Annual cost savings can be calculated by subtracting the total cost of the new system from the total cost of the old system:
Total cost of old system = £69,500 + £22,400 = £91,900
Total cost of new system = £45,000 + £21,964 = £66,964
Annual cost savings = £91,900 - £66,964 = £24,936
Rounded to the nearest pound, the annual cost savings would be £2,436, which is option B.

(Ignore Income Taxes in This Problem Based on the Data Given, the Annual Cost Savings Would