A company has provided the following data concerning a proposed project (Ignore income taxes.): Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.The annual cost savings must be closest to: (Round your intermediate calculations to 3 decimal places.)

Question

A company has provided the following data concerning a proposed project (Ignore income taxes.):  Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.The annual cost savings must be closest to: (Round your intermediate calculations to 3 decimal places.)

Quizplus · Accepted Answer

Using the tables provided in Exhibit 14B-1 and Exhibit 14B-2, the appropriate discount factor for a project with a 5-year life and a required rate of return of 10% is 3.791. Taking the annual cost savings of $8,000 and dividing by this discount factor yields a present value of $2,109. This present value is subtracted from the initial investment of $8,000 to give a net present value of -$5,891. Since the net present value is negative, the project should not be undertaken. The annual cost savings closest to the calculated value of $2,109 is $2,436 (the answer option B).

A Company Has Provided the Following Data Concerning a Proposed