Question - 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.