Whitney Company Is Contemplating Three Different Equipment Investments The Present Value Factor of an Ordinary Annuity of One

Whitney Company is contemplating three different equipment investments.The relevant data follows:
$\begin{array}{llll}&\text { Poposal D }&\text { Poposal O }&\text { Poposal G }\\\text { Cost } & \$ 200,000 & \$ 300,000 & \$ 830,000 \\\text { Annual cash savings (end of year) } & \$ 40,000 & \$ 70,000 & \$ 150,000 \\\text { Terminal salvage value } & \$ 10,000 & \$ 5,000 & \$ 20,000 \\\text { Estimated useful life in years } & 10 & 10 & 10 \\\text { Minimum desired rate of return } & 12 \% & 12 \% & 12 \%\\\text { Method of depreciation }&\text { Straight-line }&\text { Straight-line }&\text { Straight-line }\\\end{array}$
The present value factor of an ordinary annuity of one for 10 periods at 12% is 5.6502.
The present value factor of one for 10 periods at 12% is 0.322.
Required:
A) Compute the net present value of each investment. Ignore income taxes.
B) If only one investment can be acquired, which investment should be chosen?

Correct Answer:

Verified

A)
Proposal D: NPV = ($40,000 × 5.6502)+...

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