Monterey Company is considering investing in two new vans that are expected to generate combined cash infows of $30.000 per year. The vans' combined purchase price is $93.000. The expected life and salvage value of each are four years and $23,000, respectively. Monterey has an average cost of capital of 7 percent. a. Calculate the net present value of the investment property Present value of yearly cash inflows Present value of salvage value Cost of vans Net present value b. Indicate whether the investment opportunity is expected to eam a return that is above or below the cost of capital and whether it should be accepted. E16- 3 16-4 16-5 E16-6 PV of 51 PVA of $ FV of S1 FA of St Aaron Heath is seeking part-time employment while he attends school. He is considering purchasing technical equipment that will enable him to start a smal 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 Intow 2019 $S 2 5,000 2020 $ 29,000 2021 $ 32,000 2022 $ 32,000 Cash Outlow $ 12,000 $ 16.000 $ 18.000 $ 18.000 T In addition to these cash flows, Aaron expects to pay $25,000 for the equipment. He also expects to pay $4,000 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 $4,000 salvage value and a four-year useful life. Aaron destros to earn a rate of return of 8 percent a. We can't use the annuity table to calculate the present value of the yearly expected cash flows associated with running the business. Why CE b. Calculate the net present value of the investment opportunity Present value of yearly net cash Infows Present value of overhaul and update Present value of salvage value Cost of equipment Net present value c. Indicate whether the investment opportunity is expected to earn a return that is above or below the cost of capital and whether it should be accepted. Present Valve Table for helping with PV Calculation (w not turn green Year of Operation Net Cosh Infow Factor 2019 2020 20211 2022 Total