2. Using a 8% interest rate, determine which device, if any, should be selected based on net present worth. Initial Cost -S600 Annual Benefit Salvage Value $100 Useful Life 5 years 10 years Device A $250 Device B -S700 $100 $180

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Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.