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le Edit View History Bookmarks People Window Help cure https://newconnect.mheduca pter 24 Homework Help Save &Exit; Submit Check my work 6 0 Required Information t 1 of 2 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 $2.800 for three years. The investment costs $53,400 and has an estimated $9,300 salvage value Peng requires a 10% return on its investments. Compute the net present value of this investment Assume the company uses straight-line depreciation. P of $1. EV atPVA of $1. and AA of $1) (use appropriate factorts) from the tables provided. Negative amounts should be Indicated by a minus sign.) Sapped Annual cash fow Residual value Net present value or 1o 2 4Explanation / Answer
Investment Cost = $53,400
Estimated Salvage Value = $9,300
Estimated life = 3 years
Average Net Income After taxes = $2,800
Depreciation = 53,400 - 9,300 / 3 = 14,700
Annual Cash Flows = Net Income + Depreciation = 2,800 + 14,700 = $17,500
PV of cash flows = Annual Cashflows * PVAF(10% for 2 years ) +( Residual Value + Annual Cashflows) * PVF(10% for 3 years)
= 17,500 * 1.73554 + 26,800 * 0.751
= 30,371.95 + 20,126.80 = 50,498.75
NPV = 50,498.75 - 53,400 = (2,901.25)
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