What is the residual value of Project 2?

To determine the residual value of Project 2, it is essential to understand that the residual value, also known as salvage value, represents the estimated amount that will be recovered at the end of an asset’s useful life. This figure is important in capital budgeting and financial analysis because it affects the overall profit or loss associated with the project when the asset is disposed of or sold.

The correct answer indicates that the residual value is $15,000. This value typically reflects an estimation based on projected market conditions, the asset's expected lifespan, and factors such as depreciation. In financial analysis, this estimated amount will be factored into calculations related to the net present value (NPV) and internal rate of return (IRR) of the project.

Understanding this concept is vital as it provides insights into long-term investment decisions. Accurately estimating the residual value can lead to more informed financial projections and ultimately better decision-making regarding capital expenditures.