Aaron Heath is seeking part-time employment while he attends school. He is considering purchasing technical equipment that will enable him to start a small training services company that will offer tutorial services over the Internet. Aaron expects demand for the service to grow rapidly in the first two years of operation as customers learn about the availability of the Internet assistance. Thereafter, he expects demand to stabilize. The following table presents the expected cash flows:

Year of

Operation Cash Inflow Cash Outflow

2019 $ 14,500 $ 8,500

2020 19,500 11,800

2021 21,600 13,000

2022 21,600 13,000

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In addition to these cash flows, Aaron expects to pay $21,000 for the equipment. He also expects to pay $2,800 for a major overhaul and updating of the equipment at the end of the second year of operation. The equipment is expected to have a $1,100 salvage value and a four year useful life. Aaron desires to earn a rate of return of 8 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 intermediate calculations and final answer to 2 decimal places.)

table 1

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table 2

http://connect-nonprod.mheducation.com.s3.amazonaws.com/Media/Demo/bne/Edmonds_8e_1259748588/pva_table.jpg