Zachary Company is considering investing in two new vans that are expected to generate combined cash inflows of $35,000 per year. The vans' combined purchase price is $91,500. The expected life and salvage value of each are five years and $21,500, respectively. Zachary has an average cost of capital of 10 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required a. Calculate the net present value of the investment opportunity. (Negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to 2 decimal places.) b. Indicate whether the investment opportunity is expected to earn a return that is above or below the cost of capital and whether it should be accepted.

Zachary Company is considering investing in two new vans that are expected to generate combined cash inflows of $35,000 per year. The vans' combined purchase price is $91,500. The expected life and salvage value of each are five years and $21,500, respectively. Zachary has an average cost of capital of 10 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required a. Calculate the net present value of the investment opportunity. (Negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to 2 decimal places.) b. Indicate whether the investment opportunity is expected to earn a return that is above or below the cost of capital and whether it should be accepted.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 13E: Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a...

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