The Duval Corporation has recently evaluated a proposal to invest in cost-reducing production technology. According to the evaluation, the project would require an initial investment of $17,166 and would provide equal annual cost savings for five years. Based on a 10 percent discount rate, the project generates a net present value of $1,788 . The project is not expected to have any salvage value
at the end of its five-year life. Refer to Duval Corporation. What are the expected annual cost savings of the project? Present value tables or a financial calculator are required.
a. $3,500
b. $4,000
c. $4,500
d. $5,000
D
Net Present Value = $ 1,788
Initial Investment = 17,166
PV of Cash Inflows = 18,954
Use PV of Annuity Table (5 years, 10% discount); Constant = 3.7908
$18,954 / 3.7908 = $5,000
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