Find the present value of an investment in plant and equipment if it is expected to provide annual earnings of $61500 for 15 years and to have a resale value of $121500 at the end of that period

Accounting Mar 27, 2021

Find the present value of an investment in plant and equipment if it is expected to provide annual earnings of $61500 for 15 years and to have a resale value of $121500 at the end of that period. Assume a 12% rate and earnings at year end. The present value of 1 at 12% for 15 periods is 0.18270. The present value of an ordinary annuity at 12% for 15 periods is 6.81086. The future value of 1 at 12% for 15 periods is 5.47357.

1) $845360

2) $418868

3) $521045

4) $441066

Expert Solution

Computation of the present value of ordinary annuity:-

PV of ordinary annuity = Present value of annual earnings + Present value of resale value

= ($61,500*((1-1/(1+12%)^15)/12%)) + ($121,500*(1/(1+12%)^15))

= ($61,500*6.81086) + ($121,500*0.18270)

= $418,867.89 + $22,198.05

= $441,065.94 Or $441,066

Hence, the correct option is 4) $441,066

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