Find the present value of an investment in plant and equipment if it is expected to provide annual earnings of $21,000 for 15 years and to have a resale value of $40,000 at the end of that period.Assume a 10% rate and earnings at year end.The present value of 1 at 10% for 15 periods is .23939.The present value of an ordinary annuity at 10% for 15 periods is 7.60608.The future value of 1 at 10% for 15 periods is 4.17725.
A)$159,728
B)$169,303
C)$185,276
D)$324,576

Question

Quizplus · Accepted Answer

To calculate the present value of the investment, we need to use the present value of an annuity formula:

PV = [(Earnings per year) x (Present value of an ordinary annuity)] + (Resale value x Present value of 1)

PV = [(21,000) x (7.60608)] + (40,000 x 0.23939)
PV = 159,303.78
Therefore, the best choice is B, $169,303.

Find the Present Value of an Investment in Plant and Equipment