Johnson Corp. has an 8% required rate of return. It's considering a project that would provide annual cost savings of $50,000 for 5 years. The most that Johnson would be willing to spend on this project is Present Value PV of an Annuity Year of 1 at 8% of 1 at 8%

1.926.9262.857 1.7833.794 2.5774.735 3.3125.681 3.993A) $165,600. B) $125,910. C) $199,650. D) $34,050.

Question

Business

Hugo Roy

9 April, 05:05

Johnson Corp. has an 8% required rate of return. It's considering a project that would provide annual cost savings of $50,000 for 5 years. The most that Johnson would be willing to spend on this project is Present Value PV of an Annuity Year of 1 at 8% of 1 at 8%

1.926.9262.857 1.7833.794 2.5774.735 3.3125.681 3.993A) $165,600. B) $125,910. C) $199,650. D) $34,050.

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Answers (1)

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Kira · Answer 1

C) $199,650

Explanation:

The computation of the spending amount is shown below:

= Annual cost savings * PVIFA (8%, 5 years)

where,

Annual cost saving is $50,000

PVIFA = 3.993

Now put these values to the above formula

So, the value would be equal to

= $50,000 * 3.993

= $199,650

Simply we multiply the annual cost saving with the PVIFA so that the true amount can come.