1 answer

Need help solving this. Can you please show how you got the answer? The answer is...

Question:

5. Ames Co. is planning an investment project of a 20-year contract to build a supertanker. The company has estimated that thNeed help solving this. Can you please show how you got the answer? The answer is the one on the bottom I just need to know how to get there.

5. Ames Co. is planning an investment project of a 20-year contract to build a supertanker. The company has estimated that the net present value (NPV) of all cash flows except salvage value is ($1,400,000). If a discount rate of 8% is used, what would the salvage value cash flow need to be in 20 years to make this investment attractive? (round to nearest dollar) 6,52007

Answers

Solution:

In order to make investment attractive required present value of salvage value = $1,400,000

Desired salvage value in 20 years = $1,400,000 / PV factor at 8% for 20th period

= $1,400,000 / 0.2145

= $6,526,807

.

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