Chapter 24 Net Present Value

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 of $1) (Use appropriate factor(s) from the tables provided. Negative amounts should be indicated by a minus sign. Round your present value factor to 4 decimals.)

If Quail Company invests $50,000 today, it can expect to receive $10,000 at the end of each year for the next seven years, plus an extra $6,000 at the end of the seventh year. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your present value factor to 4 decimals.)

What is the net present value of this investment assuming a required 10% return on investments?

Following is information on an investment considered by Hudson Co. The investment has zero salvage value. The company requires a 12% return from its investments.

Compute this investment’s net present value. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round all present value factors to 4 decimal places.)

Park Co. is considering an investment that requires immediate payment of $27,000 and provides expected cash inflows of $9,000 annually for four years. Park Co. requires a 10% return on its investments.

1-a. What is the net present value of this investment? (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your present value factor to 4 decimals.)

 
1-b. Based on NPV alone, should Park Co. invest?  Yes

Explanation:

*Present value factor from Table PVA of $1:

3.1699 = Present value of an annuity of 1, wheren= 4,i= 10%