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Benaflek Co. purchased some equipment 3 years ago. The company's required rate of return is 12%, and the net present value of the project was $(1,800). Annual cost savings were: $20,000 for year 1; $16,000 for year 2; and $12,000 for year 3. The amount of the initial investment wasYear Present Value PV of an Annuity of 1 at 12% of 1 at 12%1 .893 .893 2 .797 1.6903 .712 2.402A. $40,232.B. $37,356.C. $40,956.D. $36,632.

Answer :

Answer:

The correct option is C,$40,956

Explanation:

NPV=present value annual cost savings-initial investment

NPV is -$1800

present value of annual savings=$20,000/(1+12%)^1+$16,000/(1+12%)^2+$12,000/(1+12%)^3=$39,153.61

-$1800= $39,153.61 -initial investment

initial investment=$ 39,153.61+$1800=$40953.61

The correct option is the option C,$40,956 which is closest to $40953.61 ,the difference arose from rounding errors when the discount factors were rounded to to three decimal places instead of using the exact figures

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