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Calculate the salvage value for this piece of equipment

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Reference no: EM131643259

Problem - XYZ Company is considering the purchase of a new piece of equipment and has gathered the following information about the purchase:

Initial investment ................    ?

Annual cost savings ...............  $20,000

Salvage value in 6 years ..........  20% of original cost of the equipment

Repair in 4 years .................  $11,000

Cost of capital ...................     10%

Life of project ...................    6 years

If the new piece of equipment is purchased then the equipment currently being used can be sold at the time of purchase of the new equipment for $7,000.

The net present value of this investment was calculated to be -$28,730.

Calculate the salvage value for this piece of equipment. Ignore income tax effects. Use present value factors attached.

Reference no: EM131643259

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