AM Express Inc. is considering the purchase of an additional delivery vehicle for $50,000 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 $57,000 per year for each of the next 5 years. A driver will cost $39,000 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 20Y2 $fill in the blank 20Y3 $fill in the blank 20Y4 $fill in the blank 20Y5 $fill in the blank 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 Less investment $fill in the blank Net present value $fill in the blank 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 $50,000 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 $57,000 per year for each of the next 5 years. A driver will cost $39,000 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 |
20Y2 | $fill in the blank |
20Y3 | $fill in the blank |
20Y4 | $fill in the blank |
20Y5 | $fill in the blank |
b. Compute the net present value of the investment, assuming that the minimum desired
Present value of annual net cash flow | $fill in the blank |
Less investment | $fill in the blank |
Net present value | $fill in the blank |
c. Is the additional truck a good investment based on your analysis?
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