Question

Callaghan Company is considering investing in two new vans that are expected to generate combined cash inflows of $28,000 per year. The vans’ combined purchase price is $91,000. The expected life and salvage value of each are four years and $21,000, respectively. Callaghan has an average cost of capital of 7 percent.

Required
Round your figures to two decimal points.
a. Calculate the net present value of the investment opportunity.
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.



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  • CreatedFebruary 07, 2014
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