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 $2,600 for three years. The Investment costs $57,000 and has an estimated $9,900 salvage value. Assume Peng requires a 10% return on ts Investments. Compute the net present value of this Investment. Assume the company uses stralght-line depreclation. (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.) Select Chart Amount x PV Factor Present Value Cash Flow Annual cash flow Residual value Net present value

Answer 1

Cash Flow Annual Cash flow Residual Value Select chart Present value of an Annuity of 1 Present value of 1 Present value of cash inflows Immediate cash outflows Net Present Value Amount x PV Factor - Present value $ 18,300.00 x 2.4869 = $ 45,510 $ 9,900.00 X 0.7513 = $ 7,438 $ 52,948 $ (57,000) $ (4,052) Present value factor@10% 0.9091 0.8264 0.7513 Annuity 2.4869 Working note : Net income after tax Add : Depreciation (57000-9900)/3 Cash inflows $ 2,600.00 15,700.00 18,300.00