a. Determine the expected annual net cash flows from the delivery truck investment for 20Y1-20Y5. Annual Net Cash Flow 20Y1 $fill in the blank 1 20Y2 $fill in the blank 2 20Y3 $fill in the blank 3 20Y4 $fill in the blank 4 20Y5 $fill in the blank 5 b. Calculate the net present value of the investment, assuming that the minimum desired rate of return is 10%. Use the table of the present value of $1 presented above. When required, round to the nearest dollar. If required, use the minus sign to indicate a negative net present value. Present value of annual net cash flow $fill in the blank 6 Less investment $fill in the blank 7 Net present value $fill in the blank 8 c. Is the additional truck a good investment based on your analysis?
AM Express Inc. is considering the purchase of an additional delivery vehicle for $49,000 on January 1, 20Y1. The truck is expected to have a five-year life with an expected residual value of $5,000 at the end of five years. The expected additional revenues from the added delivery capacity are anticipated to be $78,000 per year for each of the next five years. A driver will cost $56,000 in 20Y1, with an expected annual salary increase of $4,000 for each year thereafter. The annual operating costs for the truck are estimated to be $3,000 per year.
| Present Value of $1 at Compound Interest | |||||
| Year | 6% | 10% | 12% | 15% | 20% |
| 1 | 0.943 | 0.909 | 0.893 | 0.870 | 0.833 |
| 2 | 0.890 | 0.826 | 0.797 | 0.756 | 0.694 |
| 3 | 0.840 | 0.751 | 0.712 | 0.658 | 0.579 |
| 4 | 0.792 | 0.683 | 0.636 | 0.572 | 0.482 |
| 5 | 0.747 | 0.621 | 0.567 | 0.497 | 0.402 |
| 6 | 0.705 | 0.564 | 0.507 | 0.432 | 0.335 |
| 7 | 0.665 | 0.513 | 0.452 | 0.376 | 0.279 |
| 8 | 0.627 | 0.467 | 0.404 | 0.327 | 0.233 |
| 9 | 0.592 | 0.424 | 0.361 | 0.284 | 0.194 |
| 10 | 0.558 | 0.386 | 0.322 | 0.247 | 0.162 |
a. Determine the expected annual net
| Annual Net Cash Flow | |
| 20Y1 | $fill in the blank 1 |
| 20Y2 | $fill in the blank 2 |
| 20Y3 | $fill in the blank 3 |
| 20Y4 | $fill in the blank 4 |
| 20Y5 | $fill in the blank 5 |
b. Calculate the net present value of the investment, assuming that the minimum desired
| Present value of annual net cash flow | $fill in the blank 6 |
| Less investment | $fill in the blank 7 |
| Net present value | $fill in the blank 8 |
c. Is the additional truck a good investment based on your analysis?
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
