Multiple Choice Question 106 Bramble, Inc. is considering purchasing equipment costing $36000 with a 6-year useful...

Multiple Choice Question 106

Bramble, Inc. is considering purchasing equipment costing $36000 with a 6-year useful life. The equipment will provide annual cost savings of $10600 and will be depreciated straight-line over its useful life with no salvage value. Bramble requires a 10% rate of return.

	Present Value of an Annuity of 1
Period	8%	9%	10%	11%	12%	15%
6	4.623	4.486	4.355	4.231	4.111	3.784

What is the approximate net present value of this investment?

$8848

$11552

$27600

$10163

Solutions

Expert Solution

Answer)

Calculation of Net Present Value

Net present value = Present value of cash inflows – Present value of cash outflows

= (Annual cost savings X Present value of Annuity at 10% for 6 years) – Initial cash outflow

= ($ 10,600 X 4.355) - $ 36,000

= $ 46,163 = $ 36,000

= $ 10,163

Therefore net present value of investment is $ 10,163.

ekkarill92 answered 1 year ago

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