Determining net present value Callaghan Company is considering investing in two
ID: 2481275 • Letter: D
Question
Determining net present value
Callaghan 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 $99,500. The expected life and salvage value of each are six years and $21,100, respectively. Callaghan has an average cost of capital of 14 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)
Calculate the net present value of the investment opportunity. (Negative amount should be indicated by a minus sign. Round intermediate calculations and final answer to 2 decimal places.)
NET PRESENT VALUE ( $ )
Determining the payback period
Bailey Airline Company is considering expanding its territory. The company has the opportunity to purchase one of two different used airplanes. The first airplane is expected to cost $13,800,000; it will enable the company to increase its annual cash inflow by $6,000,000 per year. The plane is expected to have a useful life of five years and no salvage value. The second plane costs $29,700,000; it will enable the company to increase annual cash flow by $9,900,000 per year. This plane has an eight-year useful life and a zero salvage value.
Determine the payback period for each investment alternative. (Round your answers to 1 decimal place.)
PAYBACK PERIOD
ALTERNATIVE 1 ( YEARS)
ALTERNATIVE 2 ( YEARS)
Determining the present value of an annuity LO 16-1
The dean of the School of Fine Arts is trying to decide whether to purchase a copy machine to place in the lobby of the building. The machine would add to student convenience, but the dean feels compelled to earn an 8 percent return on the investment of funds. Estimates of cash inflows from copy machines that have been placed in other university buildings indicate that the copy machine would probably produce incremental cash inflows of approximately $15,000 per year. The machine is expected to have a three-year useful life with a zero salvage value. (Use appropriate factor(s) from the tables provided.)
Use Present Value PV of $1 to determine the maximum amount of cash the dean should be willing to pay for a copy machine. (Round intermediate calculations and final answer to 2 decimal places.)
MAXIMUM AMOUNT ($ )
Use Present Value PVA of $1 to determine the maximum amount of cash the dean should be willing to pay for a copy machine. (Round your final answer to 2 decimal places.)
MAXIMUM AMOUNT ($ )
Callaghan 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 $99,500. The expected life and salvage value of each are six years and $21,100, respectively. Callaghan has an average cost of capital of 14 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)
Explanation / Answer
As per Chegg guidelines we answer one question per post Statement showing Cash flows Particulars Time PVf@14% Amount PV Cash Outflows - 1.00 (99,500.00) (99,500.00) PV of Cash outflows = PVCO (99,500.00) Cash inflows 1.00 0.8772 33,000.00 28,947.37 Cash inflows 2.00 0.7695 33,000.00 25,392.43 Cash inflows 3.00 0.6750 33,000.00 22,274.06 Cash inflows 4.00 0.5921 33,000.00 19,538.65 Cash inflows 5.00 0.5194 33,000.00 17,139.17 Cash inflows 6.00 0.4556 33,000.00 15,034.36 Cash inflows 6.00 0.4556 21,100.00 9,612.88 PV of Cash Inflows =PVCI 137,938.90 NPV= PVCI - PVCO 38,438.90 PBP Time Amount Cumulative - (99,500.00) (99,500.00) 1.00 33,000.00 (66,500.00) 2.00 33,000.00 (33,500.00) 3.00 33,000.00 (500.00) 4.00 33,000.00 32,500.00 5.00 33,000.00 65,500.00 6.00 54,100.00 119,600.00 PBP= 3 + 500/33,000 PBP= 3.02 Years PBP= 3.79 Years Approx Note: You have not provided table. So answer will differ but it will be immaterial
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