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Compute the net present value of each investment

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Whitney Company is contemplating three different equipment investments. The relevant data follows:

                                                               Proposal D             Proposal O          Proposal G

Cost                                                         $200,000            $300,000           $830,000

Annual cash savings (end of year)            $40,000              $70,000             $150,000

Terminal salvage value                             $10,000                $5,000                $20,000

Estimated useful life in years                        10                         10                         10

Minimum desired rate of return                    12%                       12%                    12%

Method of depreciation                          Straight-line             Straight-line       Straight-line

The present value factor of an ordinary annuity of one for 10 periods at 12% is 5.6502.

The present value factor of one for 10 periods at 12% is 0.322.

Required:

A) Compute the net present value of each investment. Ignore income taxes.

B) If only one investment can be acquired, which investment should be chosen?

Reference no: EM131798357

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