AM Express Inc. is considering the purchase of an additional delivery vehicle for $43,000 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 $59,000 per year for each of the next 5 years. A driver will cost $42,000 in 20Y1, with an expected annual salary increase of $3,000 for each year thereafter. The annual operating costs for the truck are estimated to be $2,000 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 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. Compute the net present value of the investment, assuming that the minimum desired rate of return is 6%. 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?
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AM Express Inc. is considering the purchase of an additional delivery vehicle for $43,000 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 $59,000 per year for each of the next 5 years. A driver will cost $42,000 in 20Y1, with an expected annual salary increase of $3,000 for each year thereafter. The annual operating costs for the truck are estimated to be $2,000 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
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. Compute the
net present value of the investment, assuming that the minimum desiredrate of return is 6%. 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?
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A. 20Y5 Annual net cash flow is incorrect.
B.
| Less investment |
are incorrect.
a. For each year, subtract the driver salaries and operating costs from the revenues. For 20Y3 only, add the residual value.
b. Multiply the present value of $1 factor for each year by that year's net cash flow (from a). Subtract the amount to be invested from the total present value of the net cash flow.
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