Net present value method for a service company Coast-to-Coast Inc. is considering the purchase of an additional delivery vehicle for $31,000 on January 1, 20Y1. The truck is expected to have a 5-year life with an expected residual value of $5,000 at the end of 5 years. The expected additional revenues from the added delivery capacity are anticipated to be $52,000 per year for each of the next 5 years. A driver will cost $37,000 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 6% 10% Year 1 2 0.943 0.890 0.909 0.826 12% 0.893 0.797 15% 0.870 0.756 20% 0.833 0.694
Net present value method for a service company Coast-to-Coast Inc. is considering the purchase of an additional delivery vehicle for $31,000 on January 1, 20Y1. The truck is expected to have a 5-year life with an expected residual value of $5,000 at the end of 5 years. The expected additional revenues from the added delivery capacity are anticipated to be $52,000 per year for each of the next 5 years. A driver will cost $37,000 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 6% 10% Year 1 2 0.943 0.890 0.909 0.826 12% 0.893 0.797 15% 0.870 0.756 20% 0.833 0.694
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
G
Transcribed Image Text:Net present value method for a service company
Coast-to-Coast Inc. is considering the purchase of an additional delivery vehicle for $31,000 on January 1, 20Y1. The truck is expected to have a 5-year life with an expected residual value of $5,000 at the end of 5
years. The expected additional revenues from the added delivery capacity are anticipated to be $52,000 per year for each of the next 5 years. A driver will cost $37,000 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
6%
10%
Year
1
2
3
4
5
6
7
8
9
10
20Y1
20Y2
0.943
0.890
20Y3
20Y4
20Y5
0.840
0.792
0.747
0.705
0.665
0.627
0.592
0.558
0.909
0.826
0.751
0.683
0.621
0.564
0.513
0.467
0.424
0.386
12%
0.893
0.797
0.712
0.636
0.567
0.507
0.452
0.404
0.361
0.322
15%
Annual Net Cash Flow
0.870
0.756
0.658
0.572
0.497
0.432
0.376
0.327
0.284
0.247
20%
a. Determine the expected annual net cash flows from the delivery truck investment for 20Y1-20Y5.
0.833
0.694
0.579
0.482
0.402
0.335
0.279
0.233
0.194
0.162
Previous
Next >
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education