In calculating the present value of an investment in equipment, the present value of the terminal residual value should be added to the cash inflows.

Question

Quizplus · Accepted Answer

The present value of the terminal residual value represents the estimated value of the equipment at the end of its useful life, and it is a cash inflow that occurs at that time. Therefore, it should be added to the forecasted cash inflows during the investment horizon to estimate the total net present value of the investment.

In Calculating the Present Value of an Investment in Equipment