Required information [The following information applies to the questions display

Question

Required information [The following information applies to the questions displayed below. Peng Company is considering an investment expected to generate an average net income after taxes of $2,700 for three years. The investment costs $57,900 and has an estimated $7,800 salvage value. ssume Peng requires a 15% return on its investments:Compute the net present value of this investment. Assume the company uses straight-line depreciation. EPV of $1E FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Negative amounts should be indicated by a minus sign.) Amountx PV Factor- Present Value Cash Flow Select Chart Annual cash flow Present Value of an Annuity of 1 Residual value Present Value of 1 Present value of cash inflows Immediate cash outflows Net present value

Explanation / Answer

Cash Flow Select Chart Amount X P.V factor = Present Value Annual Cash Flow Present Value of an Annuity of 1 2700 X 2.2832 = $         6,164.64 Residual Value Present Value of 1 7800 X 0.6575 = $         5,128.50 Present Value of Cash Inflows = $      11,293.14 Immediate Cash Outflows = $      57,900.00 Net Present value = $     -46,606.86 Note : Net Present Value = Present Value of Cash Inflow - Present Value of Cash Outflow For Annual cash flow, take Present value of an annuity of 1 (15% , 3 years) i.e 2.2832 and for Residual Value Present Value of 1 (15%, 3 years)

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