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Semenov [28]
3 years ago
9

Peng Company is considering an investment expected to generate an average net income after taxes of $1,950 for three years. The

investment costs $45,000 and has an estimated $6,000 salvage value. Assume Peng requires a 15% return on its investments. Compute the net present value of this investment. Assume the company uses straight-line depreciation. (PV of $1, FV of $1, PVA of $1, and FVA
Business
1 answer:
Bogdan [553]3 years ago
8 0

Answer:

NPV =$(36,602.61)

Explanation:

<em>The Net present value (NPV) is the difference between the Present value (PV) of cash inflows and the PV of cash outflows. A positive NPV implies a good and profitable investment project and a negative figure implies the opposite.  </em>

NPV = PV of cash inflows - PV of cash outflows  

<em>PV of cash inflow= A × (1- (1+r)^(-n)/r</em>

A- net cash inflow  1,950, r- discount rate- 15%, n- number of years- 3

PV of cash inflows =  1,950 × ((1- (1.15)^(-3))/0.15

                               = 4,452.28

<em>PV of scrap value = F ×(1+r)^(-n)</em>

F- Scrap value - 6000, r- discount rate = 15% n- number of years- 3

PV of scrap value = 6,000 ×(1.15)^(-3)=3,945.09

NPV = 4,452.28  + 3,945.097 - 45,000

      = (36,602.61)

NPV =$(36,602.61)

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