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[The following information applies to the questions displayed below.) Peng Company is considering an investment expected to generate an average net income after taxes of $2,900 for three years. The investment costs $53,100 and has an estimated $12,000 salvage value. QS 25-8 Net present value LO P3 Assume Peng requires a 5% 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.) Select Chart Amount X PV Factor Present Value Cash Flow Annual cash flow = $ 0 Residual value II 0 Net present value
Answer:-
Explanation :-
Annual net cash flow = average net income + depreciation
= 2900 + (53100-12000)/3 = 16600
| Cash flow | select chart | amount | × | Pv factor | = | Present value |
| Annual cash flow | pv of annuity 1 | 16600 | × | 2.7232 | = |
45205.12 |
| Residual value | pv of 1 | 12000 | × | 0.8638 | = | 10365.6 |
| P.v. of | cash | Inflow | 55568.32 | |||
| Immediate | cash | Outflow | 53100 | |||
| Net | present | Value | 2468.32 |
