The Following Data Pertain to an Investment Proposal $$\begin{array} { | l | l |} \hline \text { Discourt Rate } & 16 \%\\\hline\end{array}$$

question 83

Multiple Choice

The following data pertain to an investment proposal:
$\begin{array}{|l|r|}\hline \text { Cost of the investment } & \$ 20,000 \\\hline \text { Annual cost savings } & \$ 5,000 \\\hline \text { Estimated Salvage Value } & \$ 1,000 \\\hline \text { Life of the Project } & 8 \text { years } \\\hline\end{array}$
$$\begin{array} { | l | l |} \hline \text { Discourt Rate } & 16 \%\\\hline\end{array}$$
What is the net present value of the proposed investment? (Ignore income taxes in this problem.) (Do not round your intermediate calculations and round the final answer to the nearest whole dollar.)

• A) $1,720.
• B) $2,023.
• C) $2,154.
• D) $6,064.

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Definitions:

Opportunity Costs

The cost of an alternative that must be forgone to pursue a certain action. Put differently, the benefits you could have received by taking an alternative action.

WACC

Weighted Average Cost of Capital, the average rate of return a company is expected to pay to all its security holders, including equity and debt.

Calculate

The act of determining a value or amount by mathematical means, often to analyze financial or statistical data.

Borrowed

The act of receiving something, especially money, with the obligation to return it or its equivalent.