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

Question

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

Quizplus · Accepted Answer

The present value of the salvage value can be calculated using the formula:
PV(salvage value) = salvage value / (1 + r)^n
where:
r = discount rate
n = number of periods
Using the information given in the question, we can calculate the discount rate as follows:
r = (1 + 0.08) x (1 + 0.04) - 1 = 0.12432
Using the same formula, we can calculate the present value of the salvage value as follows:
PV(salvage value) = 10,000 / (1 + 0.12432)^3 = $4,848 (rounded) 
Therefore, the best choice is A) $4,848.

The Following Information Pertains to an Investment: Ignore Income