What is the net present value ? And should the van be purchased?
unit VIII Question 15 part a
Transcribed Image Text:428
Susan's Pet Shop Is consldering the purchase ofa new dellveryvan. Susan Smlth,owner of the shop, has complled the followIng
estimates In trylng to determinewhether the dellveryvan should be purchased.
Cost of the van
$44,500
Annual net cash flows
009
Estimated useful life
8years
Cost of capltal
Present value of an annulty of1
Present value of 1.
Susan's assistant manager Is trylng to convince Susan that the van has other benefts that she hasn't consldered In the InItlal
estimates. These addltlonal benefits, Including the free advertlslng the store's name palnted on the van's doors will provlde, are
expected to Increase net cash flows by $510 eachyear.
TABLE 3 Present Valu of 1
(1)
Periods
11%
86957
1.
2.
95238
90703
86384
00606
82645
06006
92456
.54168
00068
65752
71178
85480
65873
56743
49718
5.
71068
0.62275
4816
7.
to651
690
.S0025
0.5439年
38554
35218
64958
58468
52679
.4288
38753
A5049
25668
0929
rసగరరా
46884
0.41496
,36770
.32614
57748
31524
18270
15.
21763
16.
43630
15282
18.
Milz'
.23171
18080
21455
11911"
10367
45639
37689
20.
TABLE 4 Present Value of an Annulty of I
Payments
0.93458
1.30802 176326 1.75911 173554 171252 1690o5 162571
242432 2.577102.53130 2486852 44371240183 2.28323
60606
రం9 1
272325 267801
5.97130 .746455348e.5.334935.14612406714 44872
9.34507A M252.34AR4 7.942e7530 7.16074IA69 4926619437 5.4202,
12.
10.56312,
12.6593011895910s276010.059099.3718g 3.75543 8.201417.7oie27.249676.12797
సూందవాళి?
券
Definition Definition Calculation used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. NPV is calculated as the difference between the present value of cash inflow and cash outflow. NPV is used for capital budgeting and investment planning as well as to compare similar investment alternatives.
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