Stuart Company is considering investing in two new vans that are expected to generate combined cash inflows of $26,000 per year. The vans' combined purchase price is $96,500. The expected life and salvage value of each are seven years and $21,300, respectively. Stuart has an average cost of capital of 14 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required a. Calculate the net present value of the investment opportunity. (Negative amount should be indicated by a minus sign. Round you intermediate calculations 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 whether it 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?
Stuart Company is considering investing in two new vans that are expected to generate combined cash inflows of $26,000 per year. The vans' combined purchase price is $96,500. The expected life and salvage value of each are seven years and $21,300, respectively. Stuart has an average cost of capital of 14 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required a. Calculate the net present value of the investment opportunity. (Negative amount should be indicated by a minus sign. Round you intermediate calculations 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 whether it 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?
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:Stuart Company is considering investing in two new vans that are expected to generate combined cash inflows of $26,000 per year.
The vans' combined purchase price is $96,500. The expected life and salvage value of each are seven years and $21,300,
respectively. Stuart has an average cost of capital of 14 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables
provided.)
Required
a. Calculate the net present value of the investment opportunity. (Negative amount should be indicated by a minus sign. Round you
intermediate calculations 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 whether it
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?
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