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Croce, Inc., is investigating an investment in equipment that would have a useful life of 7 years. The company uses a discount rate of 8% in its capital budgeting. The net present value of the investment, excluding the salvage value, is −$515,967. To the nearest whole dollar how large would the salvage value of the equipment have to be to make the investment in the equipment financially attractive? (Ignore income taxes.)Refer to Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided.A. $885,021B. $41,277C. $6,449,588D. $515,967

Respuesta :

jepessoa

Answer:

The answer is: A) $885,021

Explanation:

Any new project is financially attractive only if its net present value is equal or more than 0.

In this case, the net present value of the investment project (purchasing new equipment) is negative = -$515,967. In order for the project to be attractive, the salvage must have a present value of at least $515,967 or an equivalent future value of at least: $515,967 x 1.08⁷ = $515,967 x 1.7138 = 884277. The closest option is A) $885,021

ayokenny2001

The appropriate discount factor is $885,021

What is discount factor?

The discount factor is what gives future happiness, income, and losses in order to determine the factor by which money is to be multiplied to get the net present value of a good or service.

We know that any new project is financially attractive only if its net present value is equal or more than 0.

Here, the net present value of the investment project (purchasing new equipment) is negative is -$515,967

In order for the project to be attractive, the salvage must have a present value of at least $515,967 or an equivalent future value of at least:

= $515,967 x 1.08⁷

= $515,967 x 1.7138

= 884,277

The appropriate discount factor is $885,021

Learn more about discount factor here : https://brainly.com/question/7459025

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