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 $34,500 per year. The vans’ combined purchase price is $97,000. The expected life and salvage value of each are five years and $21,200, respectively. Callaghan has an average cost of capital of 12 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.)

Callaghan Company is considering investing in two new vans that are expected to generate combined cash inflows of $34,500 per year. The vans’ combined purchase price is $97,000. The expected life and salvage value of each are five years and $21,200, respectively. Callaghan has an average cost of capital of 12 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

Explanation / Answer

Present value of cash inflow = (PVAF@12%,5 * Cash inflow )+(PVF@12%,5 * Salvage)

                                            =(3.60478* 34500) + (.56743 * 21200)

                                            = 124364.78+ 12029.52

                                         =     136,394.43

NPV = 136394.43 - 97000 = 39394.43

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