Rooney Company is considering investing in two new vans that are expected to gen
ID: 2587944 • Letter: R
Question
Rooney 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 $92,500. The expected life and salvage value of each are four years and $21,400, respectively. Rooney has an average cost of capital of 12 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)
Required
Calculate the net present value of the investment opportunity. (Negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to 2 decimal places.)
Indicate whether the investment opportunity is expected to earn a return that is above or below the cost of capital and whether it should be accepted.
Explanation / Answer
a Present value of cash inflows 92639.18 Present value of salvage value 13600.13 Total present value 106239.31 Less: Investment 92500.00 Net present value 13739.31 b The investment opportunity is expected to earn a return that is above the cost of capital and it should be accepted
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.