Question
Part A) Rundle Company is considering investing in two new vans that are expected to generate combined cash inflows of $29,000 per year. The vans
Part A)
Rundle Company is considering investing in two new vans that are expected to generate combined cash inflows of $29,000 per year. The vans combined purchase price is $99,500. The expected life and salvage value of each are four years and $21,500, respectively. Rundle has an average cost of capital of 12 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)
Calculate the net present value of the investment opportunity. (Negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to 2 decimal places.)
Part B)
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 Year 1 $ 14,200 $ 9,700 Year 2 18,600 11,100 Year 3 21,900 12,700 Year 4 21,900 12,700 In addition to these cash flows, Aaron expects to pay $20,800 for the equipment. He also expects to pay $2,600 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. Aaron desires to earn a rate of return of 9 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)
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.)
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