Rossiter Restaurants is analyzing a project that requires $180,000 of fixed assets. When the project ends, those assets are expected to have an aftertax salvage value of $45,000. How is the $45,000 salvage value handled when computing the net present value of the project?

Question

Reilly Carey

Business

29 March, 19:48

Rossiter Restaurants is analyzing a project that requires $180,000 of fixed assets. When the project ends, those assets are expected to have an aftertax salvage value of $45,000. How is the $45,000 salvage value handled when computing the net present value of the project?

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Answers (1)

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Jair Chambers · Answer 1

We consider the salvage value as an income at the last moment.

Explanation:

The salvage value is the money we can when we sell the fixed assets we use in project.

When we compute the net present value, we consider the salvage value as an income in the last moment. We have to consider the time of the project to bring it at the actual moment. If the rate of discount is different to 0, the actual value of salvage value, will always be smaller that the $45,000