Chipps Corporation uses a discount rate of 9% in its capital budgeting. Management is considering an investment in telecommunications equipment with a useful life of 5 years. Excluding the salvage value of the equipment, the net present value of the investment in the equipment is ?$530,985. (Ignore income taxes.)See separate Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using the tables provided.Required:How large would the salvage value of the telecommunications equipment have to be to make the investment in the telecommunications equipment financially attractive?
What will be an ideal response?
Minimum salvage value = Negative net present value to the offset ÷ Present value factor
= $530,985 ÷ 0.650 = $816,900
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