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# Net present value for both assets

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Your company plans to acquire one of two assets. asset a costs \$162,500 and has expected annual cash savings of \$37,500. asset b cost \$225,000 and has expected annual cash savings of \$77,500. You'll use the straight-line depreciation for both assets over their estimated useful lives of 5 years, after which both will have a salvage value of zero. Your minimum desired rate of return is 14%, and the present value factor is 3.4331. Ignoring income taxes, calculate the net present value for both assets. Which assets would you advise buying? Why?

#### Solution Preview

AS we have to ignore income tax, there will be no tax shield on depreciation.

NPV is a discounted cash flow technique, which explicitly recognize the time value of money. It is defined as the difference between the ...

#### Solution Summary

The following problem helps with capital budgeting. This provides the steps to compute the net present value for both assets. Step by step calculations are given.

\$2.19