The following information pertains to an investment: Ignoring income taxes, the present value of the salvage value (rounded) is

Question

The following information pertains to an investment:  Ignoring income taxes, the present value of the salvage value (rounded) is

Quizplus · Accepted Answer

We need to calculate the present value of the salvage value. From the information given, we know that the salvage value of the investment is $60,000 at the end of 5 years. Since the salvage value occurs at the end of year 5, we need to discount it back to the present at the required rate of 8% per year. Using the present value formula, we get:

PV = FV / (1 + r)^n
where PV is the present value, FV is the future value, r is the required rate of return, and n is the number of periods.

PV = 60,000 / (1 + 0.08)^5
PV = $34,614 (rounded)

Therefore, the best choice is B, as it is the closest to the calculated value of the present value of the salvage value.

The Following Information Pertains to an Investment: Ignoring Income