The following information applies to the questions displayed below. Peng Company
ID: 2533253 • Letter: T
Question
The following information applies to the questions displayed below. Peng Company is considering an investment expected to generate an average net income after taxes of $1,950 for three years. The investment costs $45,000 and has an estimated $6,000 salvage value. Assume Peng requires a 15% return on its investments. Compute the net present value of this investment. Assume the company uses straight-line depreciation. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Negative amounts should be indicated by a minus sign. Round your present value factor to 4 decimals.) Cash Flow Select Chart Amount x PV FactorPropent Value Annual cash flow Residual value Net present valueExplanation / Answer
Annual Depreciation=(cost-salvage value)÷life
=(45000-6000)÷3 =13000
Net present value=cash inflow - cash outflow
= {(14950×2.8550)+(6000×0.6575)-45000}
=1627.35
Net present value of project is positive.
Particulars Amount Profit after tax 1950 Add: Depreciation 13000 Cash Inflow every year 14950 PVAF(15%,3) 2.855Related Questions
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