Answer the different parts for Peng Company:

A. Peng Company is considering an investment expected to generate an average net income after taxes of $2,000 for three years. The investment costs $58,500 and has an estimated $7,800 salvage value.

Assume Peng requires a 10% 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.)

Cash Flow	Select Chart	Amount	x	PV Factor	=	Present Value
Annual cash flow	Present Value of an Annuity of 1				=	$0
Residual value	Present Value of 1		x		=	0
	Present value of cash inflows
	Immediate cash outflows
	Net present value

B. Peng Co. The investment has zero salvage value. The company requires a 6% return from its investments.

	Investment A1
Initial investment	$	(310,000	)
Expected net cash flows in:
Year 1		100,000
Year 2		120,000
Year 3		113,000

Assume that instead of a zero salvage value, as shown above, the investment has a salvage value of $32,000. Compute the 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.)

Following is information on an investment considered by Hudson Co. The investment has zero salvage value. The company requires a 6% return from its investments.

	Investment A1
Initial investment	$	(310,000	)
Expected net cash flows in:
Year 1		100,000
Year 2		120,000
Year 3		113,000

QS 11-12 Net present value, with salvage value LO P3

Assume that instead of a zero salvage value, as shown above, the investment has a salvage value of $32,000. Compute the 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.)

	Cash Flow	Present Value of 1 at 6%	Present Value
Year 1
Year 2
Year 3
Totals	$0		$0
Amount invested
Net present value			$0

C. Keep the old machine and have it overhauled. If the old machine is overhauled, it will be kept for another five years and then sold for its salvage value.

Cost of old machine	$	114,000
Cost of overhaul		149,000
Annual expected revenues generated		89,000
Annual cash operating costs after overhaul		34,000
Salvage value of old machine in 5 years		23,000

Alternative 2: Sell the old machine and buy a new one. The new machine is more efficient and will yield substantial operating cost savings with more product being produced and sold.

Cost of new machine	$	296,000
Salvage value of old machine now		46,000
Annual expected revenues generated		107,000
Annual cash operating costs		24,000
Salvage value of new machine in 5 years		5,000

Complete the table:

1. Determine the net present value of alternative 1.
Initial cash investment (net)
Chart values are based on:
i =
Year	Subsequent Cash inflow (outflow)	x	Table factor	=	Present Value
1				=
2				=
3				=
4				=
5				=
					$0
2. Determine the net present value of alternative 2.
Initial cash investment (net)
Year	Subsequent Cash inflow (outflow)	x	Table factor	=	Present Value
1				=
2				=
3				=
4				=
5				=
Now
					$0
3. Which alternative should management select?