Question

Peng Company is considering an investment expected to generate an average net income after taxes of $3,300 for three years.

The investment costs $56,100 and has an estimated $7,500 salvage value.
Assume Peng requires a 5% return on its investments.
Compute the net present value of this investment.
(FV of $1, PV of $1, FVA of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) (Negative amounts should be indicated by a minus sign.)
Cash Flow Select Chart Amount X PV Factor = Present Value
Annual cash flow Present Value of an Annuity of 1 ? X 2.7232 ?
Residual value Present Value of 1 $ 7,500 X 0.8638 = $ 6,479
Present value of cash inflows ?
Immediate cash outflows

Answer 1

3482.12

Step-by-step explanation:

Net present value is the present value of after-tax cash flows from an investment less the amount invested.

NPV can be calculated using a financial calculator

Cash flow = net income + depreciation = 16,200 + 3300 = 35,700

($56,100 - $7500) / 3 = 16,200

Cash flow in year 0 = 56,100

cash flow in year 1 and 2 = 35700

cash flow in year 3 = 35,700 + 7500

i = 5%

NPV =