(Ignore income taxes in this problem) Buse Corporation is investigating buying a small used aircraft for the use of its executives. The aircraft would have a useful life of 8 years. The company uses a discount rate of 14% in its capital budgeting. The net present value of the investment, excluding the salvage value of the aircraft, is -$488,487. Management is having difficulty estimating the salvage value of the aircraft. To the nearest whole dollar how large would the salvage value of the aircraft have to be to make the investment in the aircraft financially attractive?

Question

Quizplus · Accepted Answer

The salvage value of the aircraft would have to be $1,391,701 to make the investment in the aircraft financially attractive. This is because the net present value of the investment, excluding the salvage value of the aircraft, is -$488,487. Therefore, the salvage value of the aircraft would have to be $1,391,701 ($488,487 + $1,391,701 = $0) to make the investment in the aircraft financially attractive.

(Ignore Income Taxes in This Problem) Buse Corporation Is Investigating