Buse Corporation is investigating buying a small used aircraft for the use of its executives. The aircraft would have a useful life of 8 years. The company uses a discount rate of 14% in its capital budgeting. The net present value of the investment, excluding the salvage value of the aircraft, is - $488,487. Management is having difficulty estimating the salvage value of the aircraft. To the nearest whole dollar how large would the salvage value of the aircraft have to be to make the investment in the aircraft financially attractive

Question

Clinton Bender

Business

24 July, 14:12

Buse Corporation is investigating buying a small used aircraft for the use of its executives. The aircraft would have a useful life of 8 years. The company uses a discount rate of 14% in its capital budgeting. The net present value of the investment, excluding the salvage value of the aircraft, is - $488,487. Management is having difficulty estimating the salvage value of the aircraft. To the nearest whole dollar how large would the salvage value of the aircraft have to be to make the investment in the aircraft financially attractive

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Answers (1)

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Sawyer Melton · Answer 1

the salvage value of the aircraft is A. $1,391,701

Explanation:

Net Present Value = - cost of aircraft = - - $488,487

Hence salvage value after 8 years would have to be equal to future value of investment = - $488,487*1.14^8 = $1,393,451 ($1,391,701 is the nearest answer)