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:

Measure of Activity

An identifier used to gauge the level or intensity of activity within a certain process or system.

Planning Budget

A budget designed for a specific level of activity, often used as a tool for performance evaluation and cost management.

Net Operating Income

The profit a company makes from its normal business operations, excluding expenses from financing and taxes.

Service Company

A business that provides intangible products, such as services or expertise, rather than physical goods.