Please do not answer unless you are sure....I have used six tries and everyone has been incorrect regarding the Net present value!!! How can I get my credit back????
Solomon Company is considering investing in two new vans that are expected to generate combined cash inflows of $33,000 per year. The vans’ combined purchase price is $98,500. The expected life and salvage value of each are four years and $22,000, respectively. Solomon has an average cost of capital of 16 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)
Required
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.)
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.
a. | Net present value | not attempted |
b. | Will the return be above or below the cost of capital? | Aboveselected answer correct |
Should the investment opportunity be accepted? | Acceptedselected answer correct |
Net Present value = Present value of cash inflows – Present value of cash outflows
= 33000*PVAF(16%, 4 years) + 22000*PVF(16%, 4 years) – 98500
= 33000*2.798 +22000*0.552 – 98500
= $5,978
b.Above cost of capital since NPV is positive
Yes, should be accepted
Note: If this NPV is not correct, I request you to kindly check the present value table provoded in your question. Please check the number of decimal places they have given the present value factors. Use those to get accurate answer
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