The following information pertains to an investment by the Town of Sutton: $$\begin{array} { l r }
\text { Investment } & \$ 140,000 \
\text { Annual revenues } & \$ 96,000 \
\text { Annual variable costs } & \$ 32,000 \
\text { Annual fixed out-of-pocket costs } & \$ 20,000 \
\text { Salvage value } & \$ 12,000 \
\text { Discount rate } & 12 \% \
\text { Expected life of project } & 8 \text { years }
\end{array}$$ Ignore income taxes. The present value of the salvage value (rounded) is

Question

The following information pertains to an investment by the Town of Sutton: $$\begin{array} { l r } 
\text { Investment } & \$ 140,000 \
\text { Annual revenues } & \$ 96,000 \
\text { Annual variable costs } & \$ 32,000 \
\text { Annual fixed out-of-pocket costs } & \$ 20,000 \
\text { Salvage value } & \$ 12,000 \
\text { Discount rate } & 12 \% \
\text { Expected life of project } & 8 \text { years }
\end{array}$$ Ignore income taxes. The present value of the salvage value (rounded) is

Quizplus · Accepted Answer

The present value of the salvage value is calculated using the formula $$PV = \frac{FV}{(1 + r)^n}$$, where $PV$ is the present value, $FV$ is the future value (salvage value in this case), $r$ is the discount rate, and $n$ is the number of years. Plugging in the values: $$PV = \frac{\$12,000}{(1 + 0.12)^8} = \frac{\$12,000}{(1.12)^8} \approx \$4,848.$$

The Following Information Pertains to an Investment by the Town