Exercise 16-5 Determining net present value LO 16-2 Callaghan Company is conside
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Exercise 16-5 Determining net present value LO 16-2 Callaghan Company is considering investing in two new vans that are expected to generate combined cash inflows of $26,500 per year. The vans' combined purchase price is $96,000. The expected life and salvage value of each are four years and $20,900, respectively. Callaghan has an average cost of capital of 14 percent (PV of $1 and PVA of $1) (Use appropriate factorfs) from the tables provided.) Required a. Calculate the net present value of the investment opportunity (Negative amount should be indicated by a minus sign. Round intermediate calculations and final answer to 2 decimal places.) b-1. Indicate whether the investment opportunity is expected to earn a return that is above or below the cost of capital. Above Below b-2. Based on your answer in Requirement b-1, should the investment opportunity be accepted 0 Accepted O Rejected Achamomile-roman jpg A images (24pg 149 jpg ^ ; Type here to searchExplanation / Answer
Statement showing Cash flows Particulars Time PVf 14% Amount PV Cash Outflows - 1.00 (96,000.00) (96,000.00) PV of Cash outflows = PVCO (96,000.00) Cash inflows 1.00 0.8772 26,500.00 23,245.61 Cash inflows 2.00 0.7695 26,500.00 20,390.89 Cash inflows 3.00 0.6750 26,500.00 17,886.75 Cash inflows 4.00 0.5921 26,500.00 15,690.13 Cash inflows = Salvage Value 4.00 0.5921 20,900.00 12,374.48 PV of Cash Inflows =PVCI 89,587.85 NPV= PVCI - PVCO (6,412.15) b-1 Below since NPV is negative b-2 rejected since return from invetsment is less than required return of 14%
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