Advanced Digital Design Is Analyzing a Capital Investment Project for Using

question 29

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
When considering the net present value of the investment in new computing technology, which one of the following represents a possible internal rate of return on the investment?

• A)10%.
• B)12%.
• C)14%.
• D)None of the answers are possible.

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