Net Present Value Method for a Service Company Coast-to-Coast Inc. is considering the purchase of an additional delivery vehicle for $46,000 on January 1, 20Y1. The truck is expected to have a five-year life with an expected residual value of $7,000 at the end of five years. The expected additional revenues from the added delivery capacity are anticipated to be $61,000 per year for each of the next five years. A driver will cost $41,000 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 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 0.792 0.683 0.636 0.572 0.482
Net Present Value Method for a Service Company Coast-to-Coast Inc. is considering the purchase of an additional delivery vehicle for $46,000 on January 1, 20Y1. The truck is expected to have a five-year life with an expected residual value of $7,000 at the end of five years. The expected additional revenues from the added delivery capacity are anticipated to be $61,000 per year for each of the next five years. A driver will cost $41,000 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 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 0.792 0.683 0.636 0.572 0.482
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter12: Capital Investment Analysis
Section: Chapter Questions
Problem 8E: Net present value method for a service company Coast-to-Coast Inc. is considering the purchase of an...
Related questions
Question
![a. Determine the expected annual net cash flows from the delivery truck investment for 20Y1-20Y5.
Annual Net Cash Flow
20Y1
46,000 x
20Υ2
20Υ3
20Y4
20Y5
b. Compute the net present value of the investment, assuming that the minimum desired rate of return is 15%. 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
Investment
Net present value
c. Is the additional truck a good investment based on your analysis?
-v, because the net present value is positive
Yes](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff8c879c5-4abd-41e0-a23b-c4f185aff8d4%2Fcad598ab-2b8a-43bd-a4e3-31ae12ad8e7f%2F82vrrs9_processed.jpeg&w=3840&q=75)
Transcribed Image Text:a. Determine the expected annual net cash flows from the delivery truck investment for 20Y1-20Y5.
Annual Net Cash Flow
20Y1
46,000 x
20Υ2
20Υ3
20Y4
20Y5
b. Compute the net present value of the investment, assuming that the minimum desired rate of return is 15%. 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
Investment
Net present value
c. Is the additional truck a good investment based on your analysis?
-v, because the net present value is positive
Yes
![Net Present Value Method for a Service Company
Coast-to-Coast Inc. is considering the purchase of an additional delivery vehicle for $46,000 on January 1, 20Y1. The truck is expected to have a five-year life with an expected
residual value of $7,000 at the end of five years. The expected additional revenues from the added delivery capacity are anticipated to be $61,000 per year for each of the next five
years. A driver will cost $41,000 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
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
0.747
0.621
0.567
0.497
0.402
6
0.705
0.564
0.507
0.432
0.335
0.665
0.513
0.452
0.376
0.279
8
0.627
0.467
0.404
0.327
0.233
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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff8c879c5-4abd-41e0-a23b-c4f185aff8d4%2Fcad598ab-2b8a-43bd-a4e3-31ae12ad8e7f%2Flhzsol_processed.jpeg&w=3840&q=75)
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 $46,000 on January 1, 20Y1. The truck is expected to have a five-year life with an expected
residual value of $7,000 at the end of five years. The expected additional revenues from the added delivery capacity are anticipated to be $61,000 per year for each of the next five
years. A driver will cost $41,000 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
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
0.747
0.621
0.567
0.497
0.402
6
0.705
0.564
0.507
0.432
0.335
0.665
0.513
0.452
0.376
0.279
8
0.627
0.467
0.404
0.327
0.233
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.
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