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

Calculation of the present Value Year Cash Flow Discount Net 0 -96500 1 -96500 1 30500 0.877193 26754.39 2 30500 0.769468 23468.76 3 30500 0.674972 20586.63 4 30500 0.59208 18058.45 5 30500 0.519369 15840.74 6 30500 0.455587 13895.39 7 30500 0.399637 12188.94 8 30500 0.350559 10692.05 8 20200 0.350559 7081.292 Present Value 52066.64 Present Value = Cash Inflows- Cash Outflows

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