Callaghan Company is considering investing in two new vans that are expected to

Question

Callaghan Company is considering investing in two new vans that are expected to generate combined cash inflows of S28.030 per year. The vans' combined purchase price is S91.003. The expected life and salvage value of each are four years and S21.000. respectively. Callaghan 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: Calculate the net present value of the investment opportunity. (Round intermediate calculations and round your 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. Above Below Based on your answer in Requirement b-1. should the investment opportunity be accepted. Accepted Rejected

Explanation / Answer

For the Cash Flow Series
NPV = $39,099.82

b-1.Above

b-2.Accepted

Cash Flow Stream Detail Period Cash Flow Present Value 0 -71,000.00 -71,000.00 1 28,000.00 26,168.22 2 28,000.00 24,456.28 3 28,000.00 22,856.34 4 48,000.00 36,618.97 Total: 39,099.82

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