Jesse Company Has Obtained the Following Data About a Possible $\begin{array} { l } \text {Cost }&\$300,000 \\ \text {Terminal salva ge value in 10 years }&0 \\\end{array}$

question 119

Essay

Jesse Company has obtained the following data about a possible planned investment:
$\begin{array} { l } \text {Cost }&\$300,000 \\ \text {Terminal salva ge value in 10 years }&0 \\\end{array}$

Annual cash operating savings excluding depreciation
$\begin{array}{ll}\text { for } 10 \text { years (end of year) } & \$ 50,000 \\\text { Estimated useful life in years } & 10 \\\text { Minimum desired rate of return } & 10 \%\\\text { Present value of ordinary annuity, } 10 \%, 10 \text { periods }&6.1446\\\text { Present value of one, } 10 \%, 10 \text { periods }&0.3855\\\text { income tax rate }&40\%\end{array}$
The company uses the straight-line depreciation method for taxes.
Required:
A) Compute the net present value of the investment.
B) Compute the net present value of the investment if the terminal salvage value is estimated to be $50,000 in 10 years.

• A) Compute the net present value of the investment.
• B) Compute the net present value of the investment if the terminal salvage value is estimated to be $50,000 in 10 years.

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Definitions:

Spot Rate

The present going rate for a specific currency to be purchased or exchanged, available for prompt delivery.

Hedge

A financial strategy used to reduce the risk of adverse price movements in an asset.

Hedge

An investment position intended to offset potential losses or gains that may be incurred by a companion investment, commonly used for risk management.

Exchange Variations

Refers to the fluctuations in the value of currencies in the foreign exchange market, impacting the value of foreign currency transactions.