Find the present value of an investment in plant and equipment if it is expected to provide annual earnings of £42,000 for 15 years and to have a resale value of £80,000 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.

Question

Quizplus · Accepted Answer

First, we need to find the present value of the annual earnings:
PV of annuity = £42,000 x 7.60608 = £319,456
Next, we need to find the present value of the resale value:
PV of resale value = £80,000 x 0.23939 = £19,191.20
Now, we can find the total present value of the investment:
Total PV = PV of annuity + PV of resale value = £319,456 + £19,191.20 = £338,647.20
Therefore, the best choice is B.

Find the Present Value of an Investment in Plant and Equipment