A piece of equipment has a cost of $20,000.The equipment will provide cost savings of $3,500 each year for ten years,after which time it will have a salvage value of $2,500.If the company's discount rate is 12%,what is the equipment's net present value? (Ignore income taxes in this problem.)(Do not round your intermediate calculations and round the final answer to the nearest whole dollar.)

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To calculate the net present value (NPV) of the equipment, we need to discount the annual cost savings and the salvage value back to present value terms using the company's discount rate of 12%. The formula for NPV is:$$ NPV = \sum \frac{R_t}{(1 + r)^t} - C $$where $R_t$ is the net cash inflow during the period t, $r$ is the discount rate, $t$ is the number of time periods, and $C$ is the initial investment cost.1. Calculate the present value of the annual cost savings for 10 years:$$ PV_{savings} = 3,500 \times \left( \frac{1 - (1 + 0.12)^{-10}}{0.12} \right) $$$$ PV_{savings} = 3,500 \times 5.65022 $$$$ PV_{savings} = 19,775.77 $$2. Calculate the present value of the salvage value:$$ PV_{salvage} = \frac{2,500}{(1 + 0.12)^{10}} $$$$ PV_{salvage} = \frac{2,500}{3.10585} $$$$ PV_{salvage} = 804.79 $$3. Calculate NPV:$$ NPV = PV_{savings} + PV_{salvage} - Cost $$$$ NPV = 19,775.77 + 804.79 - 20,000 $$$$ NPV = 580.56 $$Rounded to the nearest whole dollar, the NPV is $581.

A Piece of Equipment Has a Cost of $20,000