In calculating the present value of an investment in equipment, the present value of the residual value should be added to the cash inflows.

Question

Quizplus · Accepted Answer

The present value of the residual value (the expected value of the equipment after its useful life) should be added to the cash inflows when calculating the present value of an investment in equipment. This is because the residual value represents an additional cash inflow that will be received at the end of the investment's useful life, and it should be discounted to its present value to accurately reflect its contribution to the investment's value.

In Calculating the Present Value of an Investment in Equipment