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 $30,500 per year. The vans’ combined purchase price is $96,500. The expected life and salvage value of each are eight years and $20,200, 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.)

Callaghan Company is considering investing in two new vans that are expected to generate combined cash inflows of $30,500 per year. The vans’ combined purchase price is $96,500. The expected life and salvage value of each are eight years and $20,200, 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

(You have not posted the table of PV of S1 and PVA of S1 so i have calculated myself)

Present value of cash outflow i.e. initial investment = $96500

Calculation of present value of cash inflow

Year 1 to 8 = $30500 * 4.6389 = $141485.35

Year 8 = ($20200*2) * 0.3506 = $14164.24

Present value of cash inflow = ($141485.35 + $14164.24) = $155649.59

Net present value of the investment opportunity = $155649.59 - $96500 = $59149.59

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