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Transit Shuttle, Inc. - Determing Net Present Value

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Exercise 24-5A Determining net present value

Transit Shuttle Inc. is considering investing in two new vans that are expected to generate combined cash inflows of $20,000 per year. The vans' combined purchase price is $65,000. The expected life and salvage value of each are four years and $15,000, respectively. Transit Shuttle has an average cost of capital of 14 percent.

Required
a. Calculate the net present value of the investment opportunity.

b. 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.

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Solution Summary

Transit Shuttle, Inc is analyzed to determine the net present value.

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