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20 February, 15:19

Cullman Transport Company is considering investing in a truck that is expected to generate cash inflows of $30,000 per year. The purchase price of the truck is $142,000. The expected life of the truck is 5 years and it has a salvage value of $32,000. Cullman has a required rate of return of 6 percent. Based on this information the net present value of this investment opportunity is (Use the PV of $1 and PVA of $1 tables and round your answer to the nearest whole dollar.)

a) $8,283.

b) $23,912.

c) $126,371.

d) $150,283.

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Answers (1)
  1. 20 February, 15:45
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    Option (a) : $8,283

    Explanation:

    As per the data given in the question,

    Year Net Cash Flow

    0 $142,000

    1 $30,000

    2 $30,000

    3 $30,000

    4 $30,000

    5 $62,000 ($30,000 + $32,000)

    Net present value = NPV (6%, A3:A7) - $142,000

    = $150,283.18 - $142,000

    = $8,283.18

    = $8,283

    Hence, option (a) : $8,283 is correct answer

    Here A3 to A7 shows the cash flows from year 1 till year 5. Use in the excel and the $150,283.18 could come
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