Gpeng company is considering an investment expected to generate an average net income after taxes of $2,700 for three years. the investment costs $55,500 and has an estimated $11,400 salvage value. assume peng requires a 10% return on its investments. compute the net present value of this investment. (fv of $1, pv of $1, fv of $1 an pva of $1) (use appropriate factor(s) from the tables provided.) (negative amounts should be indicated by a minus sign.)

Net Present value = -$40,221

Explanation:

The net present value is the sum of the discounted cash-flows over the life of the project from t=0 to t=n.

Year  Cash-flowPVIF       Present Value

0           (55,500)   1.0000    (55,500)

1               2,700    0.9091       2,455  

2              2,700    0.8264      2,231  

3              2,700    0.7513       2,029  

3             11,400     0.7513       8,565  

        Net Present value       (40,221)

The salvage value is treated as a cash-flow at the end of year 3 as that's the last year in which the project records a cash inflow. In this question, a negative net present value implies that the project is not profitable, and should therefore not be undertaken.

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