Question

Munoz Company is considering investing in two new vans that are expected to generate combined cash inflows of $32,000 per year. The vans' combined purchase price is $91,000. The expected life and salvage value of each are seven years and $21,400 respectively. Munoz has an average cost of capital of 14 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) 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 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 the cost of capital and whether it should be accepted. Net present value b. Will the return be above or below the cost of capital? Should the investment opportunity be accepted?

Answer 1

Year CF Year ICF 0 $(91,000.00) 0 1-91000 1 $ 32,000.00 1 32000 2 $ 32,000.00 2 32000 3 $ 32,000.00 3 32000 4 $ 32,000.00 4 32000 5 $ 32,000.00 5 32000 6 $ 32,000.00 6 32000 7 $ 53,400.00 7 1=32000+21400 NPV $ 54,777.99 NPV =NPV(14%,B3:B9)+B2 | b Above b Above Accept Accept