Christina Company Will Purchase a Van for $40,000

Christina Company will purchase a van for $40,000.It will have a depreciable life of 5 years and a terminal salvage value of $10,000.Assume a tax rate of 20% and a required after-tax rate of return of 12%.The company uses straight-line depreciation for tax purposes.The annual cash operating savings at the end of each year,exclusive of depreciation,are $10,000 for five years.The present value of one for five periods at 12% is 0.5674.The present value of an ordinary annuity of one for five periods at 12% is 3.6048.What is the net present value of the van?

A) $(5,394)
B) $(1,162)
C) $11,909
D) $17,583

Correct Answer:

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