What Is the Net Present Value of a Capital Project

question 82

Multiple Choice

What is the net present value of a capital project to buy new equipment for replacing old equipment, given the following data and a minimum return of 12%? Ignore income taxes. $\begin{array}{lrr}&\text {Old}&\text { New}\\&\underline{\text { Equipment }}&\underline{\text { Equipment }}\\\text { Purchase price } & \$ 21,600 & \$ 36,000 \\\text { Accumulated depreciation } & 7,200 & 0 \\\text { Remaining useful life (years) } & 8 & 8 \\\text { Current salvage value } & 12,000 & 0 \\\text { Salvage value in 8 years } & 1,000 & 2,000 \\\text { Annual operating costs } & 14,000 & 8,000\end{array}$

• A) $7,020
• B) $6,616
• C) $(5,788)
• D) $4,596

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