Metro Shuttle Company is considering investing in two new vans that are expected to generate combined cash inflows of $33,000 per year. The vans’ combined purchase price is $95,000. The expected life and salvage value of each are eight years and $21,600, respectively. Metro Shuttle has an average cost of capital of 12 percent.
Use Table 1 and Table 2.
Required:
a.
Calculate the net present value of the investment opportunity. (Round “PV Factor” to 6 decimal places, intermediate calculations and final answer to 2 decimal places. Negative amount should be indicated by a minus sign. Omit the “$” sign in your response.)
Net present value $
b 1.
Indicate whether the investment opportunity is expected to earn a return that is above or below the cost of capital.
Below
Above
b 2. Based on your answer in Requirement b 1, should the investment opportunity be accepted.
Rejected
Accepted