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Lake 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. Lake Shuttle Inc. has an average cost of capital of 14%.

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 of below the cost of capital and whether is should be accepted.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9438445

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