Question

Required information Use the following information for the Quick Study below. 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 $2,500 for three years. The investment costs $53,700 and has an estimated $10,500 salvage value. QS 24-8 Net present value LO P3 Assume Peng requires a 10 % 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.) PV Present Cash Flow Select Chart Amount Value Factor Annual cash flow Residual value Net present value

Answer 1

Solution:

Annual depreciation = ($53,700 - $10,500) / 3 = $14,400

Annual cash inflows= Net income + Depreciation = $2,500 + $14,400 = $16,900

Cash Flow	Select Chart	Amount	*	PV factor	=	Present Value
Annual cash flow	PVA of $1	$16,900.00	*	2.4869	=	$42,029
Residual value	PV of $1	$10,500.00	*	0.7513	=	$7,889
	Present value of cash inflows					$49,917
	Initial Investment					$53,700
	Net Present Value					-$3,783