Question

Campbell Company is considering investing in two new vans that are expected to generate combined cash inflows of $30,000 per year. The vans’ combined purchase price is $94,500. The expected life and salvage value of each are four years and $20,900, respectively. Campbell 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

1. Calculate the net present value of the investment opportunity.

Answer 1

Year	Cash Flow	PV Factor	PV Of Cash Flow
a	b	c=1/1.12^a	d=b*c
0	$ -94,500	1	$         -94,500.00
1	$   30,000	0.892857	$           26,785.71
2	$   30,000	0.797194	$           23,915.82
3	$   30,000	0.711780	$           21,353.41
4	$   30,000	0.635518	$           19,065.54
4	41800	0.635518	$           26,564.66
	Net Present Value		$           23,185.14
	Salvage Value = 20900*2 =$41800