Below are two potential investment alternatives: $\begin{array}{lll}&A&B\
\text { Initial capital investment } & & \
\$ 180,000 & \$ 270,000 & \
\text { Estimated useful life } & 3 \text { yrs. } & 3 \text { yrs. } \
\text { Estimated terminal salvage value } & -0- & -0- \
\text { Estimated annual savings in cash } & & \
\text { op erating costs } & \$ 75,000 & \$ 120,00 \
\text { Minimum desired rate of return } & 10 \% & 12 \%
\end{array}$
Assume straight- line depreciation in all computations, and ignore income taxes. The net present value in investment A is:

Question

Below are two potential investment alternatives: $\begin{array}{lll}&A&B\
\text { Initial capital investment } & & \
\$ 180,000 & \$ 270,000 & \
\text { Estimated useful life } & 3 \text { yrs. } & 3 \text { yrs. } \
\text { Estimated terminal salvage value } & -0- & -0- \
\text { Estimated annual savings in cash } & & \
\text { op erating costs } & \$ 75,000 & \$ 120,00 \
\text { Minimum desired rate of return } & 10 \% & 12 \%
\end{array}$
 Assume straight- line depreciation in all computations, and ignore income taxes. The net present value in investment A is:

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the annual savings at the desired rate of return and subtracting the initial investment. For investment A, the NPV is calculated as follows: NPV = (75,000 / 1.1) + (75,000 / 1.1^2) + (75,000 / 1.1^3) - 180,000 = $6,518.

Below Are Two Potential Investment Alternatives Assume Straight- Line Depreciation in All Computations, and Ignore Income