Adams Company is considering investing in two new vans that are expected to gene

Question

Adams Company is considering investing in two new vans that are expected to generate combined cash inflows of $31,500 per year. The vans’ combined purchase price is $92,000. The expected life and salvage value of each are six years and $21,800, respectively. Adams has an average cost of capital of 10 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required Calculate the net present value of the investment opportunity. (Negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to 2 decimal places.) Indicate whether the investment opportunity is expected to earn a return that is above or below the cost of capital and whether it should be accepted.

Explanation / Answer

Net present value = Present value of cash inflow-Present value of cash outflows

= (31500*4.35526+21800*0.56447)-92000

Net present value = 57496.14

Investment opportunity is expected to earn a return that is above the cost of capital and it should be accepted

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