Answered step by step
Verified Expert Solution
Question
00
1 Approved Answer
Aaron Heath is seeking part-time employment while he attends school. He is considering putchasing technical equipment that will enable him to start a small training
Aaron Heath is seeking part-time employment while he attends school. He is considering putchasing 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: In addition to these cash flows, Aaron expects to pay $31,500 for the equipment. He also expects to pay $6,600 for a major overtaul and updating of the equipment at the end of the second year of operation. The equipment is expected to have a $5,300 salvage value and a four-year useful life. Aaron desires to earn a rate of retum of 14 percent (PV of S1 and PVA of S1) Note: Use oppropriote foctor(s) from the tables provided. Required a. Calculate the net present value of the investinent opportunity. Note: Negative omount should be indicated by o minus sign. Round intermediate calculations ond final onswer to 2 decimal pleces. b. Indicate whether the investment opportunity is expected to earn a feturn that is above or below the desired rate of retuin and whether it should be accepted
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started