Hewlett Company is considering the following investment: Estimated capital inves
ID: 2424385 • Letter: H
Question
Hewlett Company is considering the following investment:
Estimated capital investment $220,000
Estimated useful life 3 years
Estimated disposal value in 3 years $10,000
Estimated annual savings in cash operating costs(end of year) $120,000
Minimum desired rate of return 12%
Present value of ordinary annuity of one, 3 periods at 12% 2.4018
Present value of one, 3 periods at 12% 0.7118
Assume straight-line depreciation is used. Ignore income taxes. The net present value of the investment is____. SHOW WORK
Explanation / Answer
Amount PVF PV Cost savings 120000 2.4018 288216 + Salvage value 10000 0.7118 7118 Pv of cash inflows 295334 Less: Initial investment 220000 NPV 75334