Question

Benson Company is considering investing in two new vans that are expected to generate combined cash inflows of $25,500 per year. The vans’ combined purchase price is $100,000. The expected life and salvage value of each are seven years and $21,300, respectively. Benson has an average cost of capital of 12 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

Required

1. 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.)

2. 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.

Answer 1