The following data pertain to an investment proposal( ignore income taxes) Description Amount
Cost of the investment $80,000
Annual Cost Savings $25,000
Estimated salvage value $10,000
Life of the project 10 Year
Discount rate 18%

Required:
Calculate the net present value of the proposed investment.

$34,262.80

Explanation:

The net present value of the proposed investment can be calculated using a Financial Calculator as :

- $80,000 CF0

$25,000    CF1

$25,000    CF1

$25,000    CF1

$25,000    CF1

$25,000    CF1

$25,000    CF1

$25,000    CF1

$25,000    CF1

$25,000    CF1

$35,000    CF1 ($25,000 + $10,000)

I/YR = 18%

Shift NPV gives $34,262.80

therefore,

the net present value of the proposed investment is $34,262.80