Question

ena company is considering an investment of $27,160 that provides net cash flows of $8,200 annually for four years.(a) if pena company requires a 7% 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?

Answer 1

The NPV is calculated with the PVA factor for the desired return rate over the investment period, but the actual calculation cannot be completed without the PVA factor table. A positive NPV indicates a worthwhile investment, while a negative NPV suggests otherwise.

Step-by-step explanation:

The net present value (NPV) of an investment is a calculation used to determine the present value of a series of future cash flows. In this case, Pena Company is considering an investment that would yield net cash flows of $8,200 annually for four years. To calculate the NPV, we would use the Present Value Annuity (PVA) factor for a 7% return rate over four years.

However, due to the nature of this platform, we don't have the actual PVA factor table to reference the exact factor needed for the calculations. Once the annually present value is calculated, it would be summed up and then subtracted from the initial investment amount of $27,160 to find the NPV.

If the calculated NPV is positive, it means that the investment would earn more than the 7% return required by Pena Company, so it should proceed with the investment. Conversely, if the NPV is negative, the investment does not meet the company's return requirements and should not be made.