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 $1,950 for three years. The investment costs $45,000 and has an estimated $6,000 salvage value. Assume Peng requires a 15% return on its investments. Compute the net present value of this investment. Assume the company uses straight-line depreciation. (PV of $1, 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. Round your present value factor to 4 decimals.)

Explanation / Answer

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

= (14950*2.2832+6000*.6575)-45000

Net present value = -6921

Annual cash flow = (45000-6000/3) = 13000+1950 = 14950

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