QS 11-14 (Algo) Net present value of an annuity LO P3 Pena Company is considering an investment of $21,555 that provides net cash flows of $6,800 annually for four years. (a) If Pena Company requires a 8% return on its investments, what is the net present value of this investment? (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your present value factor to 4 decimals.) (b) Based on net present value, should Pena Company make this investment? Complete this question by entering your answers in the tabs below. Required A What is the net present value of this investment? Years 1-4 Required B Net present value Net Cash Flows X PV Factor < Required A = Present Value of Net Cash Flows S 0 Required B >
QS 11-14 (Algo) Net present value of an annuity LO P3 Pena Company is considering an investment of $21,555 that provides net cash flows of $6,800 annually for four years. (a) If Pena Company requires a 8% return on its investments, what is the net present value of this investment? (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your present value factor to 4 decimals.) (b) Based on net present value, should Pena Company make this investment? Complete this question by entering your answers in the tabs below. Required A What is the net present value of this investment? Years 1-4 Required B Net present value Net Cash Flows X PV Factor < Required A = Present Value of Net Cash Flows S 0 Required B >
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:**Net Present Value of an Annuity Calculation**
**Scenario Overview:**
Pena Company is evaluating an investment opportunity of $21,555. This investment promises annual net cash flows of $6,800 for four years.
**Tasks to Complete:**
1. **Net Present Value Calculation:**
- If Pena Company desires an 8% return on its investments, determine the net present value (NPV) using the following factors:
- Present Value of $1 (PV of $1)
- Future Value of $1 (FV of $1)
- Present Value Annuity of $1 (PVA of $1)
- Future Value Annuity of $1 (FVA of $1)
- It is essential to use the proper factor(s) from the provided financial tables and to round your present value factor to four decimal places.
2. **Investment Decision Based on NPV:**
- Assess whether Pena Company should proceed with the investment based on the NPV calculated.
**Instructions for Response:**
- Enter your answer by selecting the appropriate tab.
- For the question "Based on net present value, should Pena Company make this investment?" choose either "Yes" or "No" from the dropdown list by evaluating the NPV result.
Complete the analysis carefully considering this structured approach to enhance informed investment decisions.
Transcribed Image Text:**Title: Net Present Value of an Annuity**
**Introduction:**
Pena Company is evaluating an investment opportunity involving an initial outlay of $21,555, which is expected to generate net cash flows of $6,800 annually over a four-year period.
**Problem Statement:**
1. **(a)** Calculate the net present value (NPV) of the investment if Pena Company requires an 8% rate of return. Use the appropriate factors from the provided financial tables. Remember to round all present value factors to four decimal places.
2. **(b)** Decide if Pena Company should proceed with the investment based on the calculated net present value.
**Instructions:**
Utilize the tabs to input your answers for the questions outlined.
**Question Section:**
- **What is the net present value of this investment?**
| Net Cash Flows | x | PV Factor | = | Present Value of Net Cash Flows |
|----------------|---|-----------|---|---------------------------------|
| Years 1-4 | | | | $0 |
| Total | | | | |
| **Net Present Value** | | | = | |
**Action Required:**
- Fill out the present value calculations in the provided table.
- Use the "Required B" button to finalize your conclusion regarding the investment decision.
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