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

The present value of the salvage value can be found by calculating the future value of the salvage value and then discounting it to the present. Using the information given in the investment details, we can calculate the future value of the salvage value as follows: $50,000 x (1+0.05)^5 = $63,815. Then, we can discount this amount to the present using a 5% discount rate and 5 periods: $63,815 / (1+0.05)^5 = $34,613.60. Rounded to the nearest dollar, the present value of the salvage value is $34,614. Therefore, the best choice is B.

The Following Information Pertains to an Investment: Ignoring Income