Campbell Company Is considering Investing in two new vans that are expected to g

Question

Campbell Company Is considering Investing in two new vans that are expected to generate combined cash Inflows of $27,000 per year. The vans combined purchase price is $91,000. The expected life and salvage value of each are four years and $22,000, respectively. Campbell has an average cost of capital of 12 percent. (PV of $1 and PVA of S1 (Use appropriete factor(s) from the tables provlded.) Required a. Calculate the net present value of the Investment opportunity. (Negatlve amount should be Indicated by a minus sign. Round your Intermedlate calculatlons and final answer to 2 decimal places.) b. Indicate whether the Investment opportunity is expected to earn a return that is above or below the cost of capital and whetherit should be accepted. a. Net present value b. Will the return be above or below the cost of capital? Should the investment opportunity be accepted?

Explanation / Answer

year Explanation year 0 1---3 yr 4 yr intital investment -91,000 cash inflow 27,000 27,000 salvage value    (22000*2) 44000 net flow -91,000 27000 71000 Discount factor 1 2.401831 0.635518 present value -91000 64849.44 45121.78 18971.22 net present value 18971.22 a. net present value 18971.22 return above Accept yes

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