Vernon

Exercise 16-5 Determining net present value LO 16-2

Vernon Company is considering investing in two new vans that are expected to generate combined cash inflows of $34,500 per year. The vans combined purchase price is $92,000. The expected life and salvage value of each are seven years and $21,900, respectively. Vernon has an average cost of capital of 14 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

Required

1. 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.)

2. 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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Ch.16 Homework 0 Saved Help Save & Exit Submit Check my work Exercise 16-5 Determining net present value LO 16-2 points Vernon Company is considering investing in two new vans that are expected to generate combined cash inflows of $34,500 per year. The vans' combined purchase price is $92,000. The expected life and salvage value of each are seven years and $21,900, respectively. Vernon has an average cost of capital of 14 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) (8 03:06:57 Required eBook Print 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 References a. Net present value b. Will the return be above or below the cost of capital? Should the investment opportunity be accepted? Above Accepted