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

---

Definitions:

Federalists

Supporters of the ratification of the U.S. Constitution and the creation of a strong federal government.

Democratic Ethos

The set of beliefs and values that emphasizes the importance of participation in the democratic process, equality, and the welfare of the community.

Popular Self-Government

A form of government based on the principle that the authority of the government is created and sustained by the consent of its people, through their elected representatives.

Shawnee Chief

A leader among the Shawnee people, a Native American tribe historically located in the northeastern and midwestern United States.