Brett Dunlop 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 teacher services over the Internet. Brett 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 2015 $ 13,400 $ 9,800 2016 18,500 11,500 2017 21,900 12,600 2018 21,900 12,600

In addition to these cash flows, Mr. Dunlop expects to pay $21,600 for the equipment. He also expects to pay $3,000 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 $1,300 salvage value and a four year useful life. Mr. Dunlop 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.)

Net present value____________________________________

b-1.Indicate whether the investment opportunity is expected to earn a return that is above or below the desired rate of return

A- Below

B- above.

b-2. Based on your answer in Requirement b-1, should the investment opportunity be accepted. A- Accepted B- Rejected