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Homework answers / question archive / Superior Armored Car Co
Superior Armored Car Co. is considering the acquisition of a new armored truck. The truck is expected to cost $300,000. The company's discount rate is 12 percent. The firm has determined that the truck generates a positive net present value of $17,022. However, the firm is uncertain as to whether it has determined a reasonable estimate of the salvage value of the truck. In computing the net present value, the company assumed that the truck would be salvaged at the end of the fifth year for $60,000. What expected salvage value for the truck would cause the investment to generate a net present value of $0? Ignore taxes. Present value tables or a financial calculator are required.
Answer:
A . $ 30,000
Step-by-Step explanation
Required salvage value = Net present value / Present value annuity factor for 5 years at the rate of 12%.
=> $17,022 / 0.5674 = $30,000.
