Answer:
The multiple choices are:
$3,480.
$2,745.
$40,480.
($3,480).
($2,745).
The correct option is $3480
Explanation:
The net present of the value is the present value of the cash inflows minus the initial cash outflow.
The initial cash outflow is $37,000
cash inflows from year 1 to 3 is $12,000
cash inflows in year 4 is $13,000 (actual cash inflow+salvage value of $1000)
present of value of the first three years' cash flow=$12,000*present value of annuity for the first three years(2.5771)
present value of cash inflow for the first three years=$12,000*2.5771=$ 30,925.20
present value of year 4 cash inflow=$13,000*0.7350=$9,555
Total present value of cash inflows=$30,925.20+$9,555=$ 40,480.20
NPV = $40,480.20-$37,000=$3480.20
