1 Coast-to-Coast Inc. is considering the purchase of an additional delivery vehicle for $38,000 on January 1, 20Y1. The truck is expected to have a 5-year life with an expected residual value of $7,000 at the end of 5 years. The expected additional revenues from the added delivery capacity are anticipated to be $66,000 per year for each of the next 5 years. A driver will cost $46,000 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 $2,000 per year. Year 1 2 3 5 6 7 8 9 10 Present Value of $1 at Compound Interest 6% 10% 0.943 0.909 12% 15% 0.870 0.890 0.756 0.658 0.579 0.572 0.482 0.497 0.402 0.432 0.335 0.376 0.279 0.327 0.233 0.361 0.284 0.194 0.386 0.322 0.247 0.162 20Y1 20Y2 20Y3 20Y4 20Y5 0.893 0.826 0.797 0.751 0.712 0.683 0.636 0.621 0.567 0.564 0.507 0.513 0.452 0.467 0.592 0.424 0.558 0.840 0.792 0.747 0.705 0.665 0.627 a. Determine the expected annual net cash flows from the delivery truck investment for 20Y1-20Y5. Annual Net Cash Flow $ Investment Net present value 0.404 $ 20% 0.833 0.694 b. Compute the net present value of the investment, assuming that the minimum desired rate of return is 20%. 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 flows c. Is the additional truck a good investment based on your analysis?
1 Coast-to-Coast Inc. is considering the purchase of an additional delivery vehicle for $38,000 on January 1, 20Y1. The truck is expected to have a 5-year life with an expected residual value of $7,000 at the end of 5 years. The expected additional revenues from the added delivery capacity are anticipated to be $66,000 per year for each of the next 5 years. A driver will cost $46,000 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 $2,000 per year. Year 1 2 3 5 6 7 8 9 10 Present Value of $1 at Compound Interest 6% 10% 0.943 0.909 12% 15% 0.870 0.890 0.756 0.658 0.579 0.572 0.482 0.497 0.402 0.432 0.335 0.376 0.279 0.327 0.233 0.361 0.284 0.194 0.386 0.322 0.247 0.162 20Y1 20Y2 20Y3 20Y4 20Y5 0.893 0.826 0.797 0.751 0.712 0.683 0.636 0.621 0.567 0.564 0.507 0.513 0.452 0.467 0.592 0.424 0.558 0.840 0.792 0.747 0.705 0.665 0.627 a. Determine the expected annual net cash flows from the delivery truck investment for 20Y1-20Y5. Annual Net Cash Flow $ Investment Net present value 0.404 $ 20% 0.833 0.694 b. Compute the net present value of the investment, assuming that the minimum desired rate of return is 20%. 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 flows c. Is the additional truck a good investment based on your analysis?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Coast-to-Coast Inc. is considering the purchase of an additional delivery vehicle for $38,000 on January 1, 20Y1. The truck is expected to have a 5-year life with an expected residual value of $7,000 at the end of 5 years. The expected additional
revenues from the added delivery capacity are anticipated to be $66,000 per year for each of the next 5 years. A driver will cost $46,000 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 $2,000 per year.
Year
1
2
3
4
5
6
7
8
9
10
20Y1
20Y2
20Y3
20Y4
Present Value of $1 at Compound Interest
6%
10%
12%
20Y5
0.943
0.890
0.840
Investment
0.792
0.747
0.705
0.665
0.627
0.592
0.558
0.909
0.826
0.751
0.683
0.621
Net present value
0.564
0.513
0.467
0.424
0.386
$
0.893
0.797
0.712
0.636
$
$
0.567
0.507
$
0.452
Annual Net Cash Flow
0.404
0.361
0.322
15%
0.870
0.756
0.658
a. Determine the expected annual net cash flows from the delivery truck investment for 20Y1-20Y5.
0.572
0.497
0.432
0.376
0.327
0.284
0.247
20%
0.833
0.694
$
0.579
0.482
0.402
0.335
0.279
0.233
0.194
b. Compute the net present value of the investment, assuming that the minimum desired rate of return is 20%. 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 flows
0.162
c. Is the additional truck a good investment based on your analysis?
hocauco the not procent value is
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