Advanced Digital Design Is Analyzing a Capital Investment Project for Using

question 67

Multiple Choice

Advanced Digital Design is analyzing a capital investment project for using new computing technology to reduce current operating costs.The new computing technology will have a five-year life with no salvage value at the end of five years.Advanced Digital Design's cost of capital is 12%.Relevant cash flows and present value factors for 5 years @ 12% are as follows: Investment in computer technology = $500,000.
Annual net cash savings from new computer technology = $135,000.
Salvage value of new computer technology = $0.
Present value of $1 = 0.5674
Present value of an annuity of $1 = 3.6048
The net present value of the investment in new computing technology is:

• A)$(423,401).
• B)$(13,352).
• C)$76,599.
• D)$175,000.

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Definitions:

Medium of Exchange

An intermediary instrument or system used to facilitate the sale, purchase, or trade of goods between parties.

Measure of Value

A function of a medium of exchange that allows it to serve as a common denominator to express the value of goods and services.

Demand Deposits

Bank accounts from which deposited funds can be withdrawn at any time without any notice to the institution, such as checking accounts.

Fed

Refers to the Federal Reserve System, which is the central banking system of the United States, responsible for monetary policy.