Company B will generate $61,000 in annual revenue each year for the next seven years from a new information database. If the appropriate interest rate is 6.75 percent, what is the present value of the savings?
Whitney Company is contemplating three different equipment investments. The relevant data follows:
Proposal D Proposal O Proposal G
Cost $200,000 $300,000 $830,000
Annual cash savings $40,000 $70,000 $150,000
Terminal salvage value $10,000 $5,000 $20,000
Estimated useful life in years 10 10 10
Minimum desired rate of return 12% 12% 12%
Method of depreciation Straight-line Straight-line Straight-line
A) Compute the net present value of each investment. Ignore income taxes.
B) If only one investment can be acquired, which investment should be chosen?
Stanley Company has obtained the following information about a proposed project: Annual cash operating savings (excluding depreciation) for 5 years (end of year) $50,000, Depreciation expense per year for tax purposes $33,000, Estimated salvage value in 5 years $10,000, Cost of equipment $175,000, Required rate of return 11%, Estimated useful life (in years) 5, Depreciation method for tax purposes, Straight-line Present value of ordinary annuity of one.
A) What is the NPV of the project?
B) Should the project be undertaken?
