### Analysis of Delivery Truck Investment#### a. Expected Annual Net Cash FlowsDetermine the expected annual net cash flows from the delivery truck investment for the years 20Y1-20Y5.**Annual Net Cash Flow:**- 20Y1: $46,000- 20Y2: $____- 20Y3: $____- 20Y4: $____- 20Y5: $____#### b. Net Present Value CalculationCompute the net present value (NPV) of the investment, assuming that the minimum desired rate of return is 15%. Refer to the table of the present value of $1 provided earlier. When necessary, round to the nearest dollar. Use the minus sign to indicate a negative net present value.- **Present value of annual net cash flows:** $____- **Investment:** $____- **Net present value:** $____#### c. Investment Decision**Is the additional truck a good investment based on your analysis?**- **Answer:** Yes, because the net present value is positive. **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|| 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|**Instructions:**a.

Net Present Value(NPV) is the difference resulted between the current inflows value with respective outflows value where positive difference is considered favorable for the decision maker. (a) Annual net cash flows are as flow: Result will be as:(b) Net present value will be as: Result will be as:(c) The correct option for first blank is YES and for second blank is POSITIVE. Reason: The figure of NPV is $505 which implies firm will have ample profits after meeting all expenditures based on time-factor of money. Hence, it is optimum to add additional delivery vehicle.

Answered: Net Present Value Method for a Service…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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