What Is the Net Present Value of a Capital Project

question 17

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. $$\begin{array} { l c c } & { \begin{array} { l } \text { Old } \\\text { Equipment }\end{array} } & \begin{array} { l } \text { New } \\\text { Equipment }\end{array} \\ \text { Purchase price } & \$ 21,600 & \$ 36,000 \\\text { Accumulated amortization } & 7,200 & 0 \\\text { Remaining useful life (years) } & 8 & 8 \\\text { Current salvage value } & 12,000 & 0 \\\text { Salvage value in 8 years } & 1,000 & 2,000 \\\text { Annual operating costs } & 14,000 & 8,000\end{array}$$

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

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Definitions:

Steel Workers

Individuals involved in the production and processing of steel, often working in mills and foundries.

Supply

The total amount of a good or service available for purchase at any given price.

Suppliers

Entities that provide goods or services to consumers or other businesses in the market.

Supply

The complete quantity of a particular product or service accessible to buyers.