An organization decided to invest in new office equipment for $320,000.

IIA IIA-CIA-Part3 Question Answer

An organization decided to invest in new office equipment for $320,000. The estimated useful life of the equipment is four years. The residual value will be $40,000. The depreciation method is straight-line. The new equipment will allow the organization to save $150,000 per year. The estimated tax rate used in the organization is 30 percent. The required rate of return is 15 percent.

The following are present values of $1 during four years for 15 percent:

Year 1 = $0.87

Year 2 = $0.76

Year 3 = $0.66

Year 4 = $0.57

What is net present value of this investment?

$71,140

$63,160

$40,360

$3,100