Question

Help Save & Exit Submit Check my work Monterey Company is considering investing in two new vans that are expected to generate combined cash inflows of $30,000 per year. The vans' combined purchase price is $93,000. The expected life and salvage value of each are four years and $23,000, respectively. Monterey has an average cost of capital of 7 percent. (PV of $1 and PVA of $1 (Use appropriate factor(s) from the tables provided.) Required ook a. Calculate the net present value of the investment opportunity. (Round your intermediate calculations and final answer to 2 decimal places.) b. Indicate whether the investment opportunity is expected to earn a return that is above or below rint the cost of capital and whether it should be accepted. a. Net present value Will the return be above or below the cost of capital? Should the investment opportunity be accepted?

Answer 1

Computation of Net Present Value: Cash Flows (S) Present Period PVF @ 7% Value 1.00 0.93 0.87 0.82 0.76 0.76 Net Present Value (93,000) 30,000 30,000 30,000 30,000 23,000 (93,000) 28,037 26,203 24,489 22,887 17,547 26,163 Net Present Value of the Investment is $ 26,163/ Since at 796, NPV is more than 1 or Positive. Actual Rate of return on the Investment will be definitely yields more than the 7% of cost of capital. Investment opportunity should be accepted