Altman Corporation is considering investing $75,000 in a new piece of machinery that will generate net...

Altman Corporation is considering investing $75,000 in a new piece of machinery that will generate net annual cash flows of $25,000 each year for the next 5 years. The machine has a salvage value of $8,000 at the end of its 5 year useful life. Altman's cost of capital and discount rate is 9%. Which of the following tables and criteria should we use to discount the salvage value of the equipment?

a	PV of a single sum table, n=5, i=9%
b	PV of annuity table, n=5, i=9%
c	PV of a single sum table, n=1, i=9%
d	PV of annuity table, n=1, i=9%

Expert Solution

The correct answer is option (a) i.e. PV of a single sum table, n=5, i=9%.

Salvage value will be recovered at the end of the 5th year, hence we will be needing the present value of 5th year so that we can reach now means at the 0th year and calculate the present value.

ekkarill92 answered 2 years ago

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