Salvage value of the equipment, Accounting Basics

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Salvage value of the equipment

Problem:

Picado, Inc. is investigating an investment in equipment that would have a useful life of 8 years. The company uses a discount rate of 9% in its capital budgeting. The net present value of the investment, excluding the salvage value, is -$389,000. To the nearest whole dollar how large would the salvage value of the equipment have to be to make the investment in the equipment financially attractive?

$774,900
$35,010
$389,000
$4,322,222

Note: Show supporting computations in good form.

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Accounting Basics: Salvage value of the equipment

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