Question

Cullman Transport Company is considering investing in a truck that is expected to generate cash inflows of $30,000 per year. The purchase price of the truck is $142,000. The expected life of the truck is 5 years and it has a salvage value of $32,000. Cullman has a required rate of return of 6 percent. Based on this information the net present value of this investment opportunity is (Use the PV of $1 and PVA of $1 tables and round your answer to the nearest whole dollar.)

a) $8,283.

b) $23,912.

c) $126,371.

d) $150,283.

Answer 1

Option (a) : $8,283

Explanation:

As per the data given in the question,

Year Net Cash Flow

0 $142,000

1 $30,000

2 $30,000

3 $30,000

4 $30,000

5 $62,000 ($30,000 + $32,000)

Net present value = NPV(6%,A3:A7) - $142,000

= $150,283.18 - $142,000

= $8,283.18

= $8,283

Hence, option (a) : $8,283 is correct answer

Here A3 to A7 shows the cash flows from year 1 till year 5 . Use in the excel and the $150,283.18 could come