Question

Net Present Value Method for a Service Company Coast-to-Coast Inc. is considering the purchase of an...

Net Present Value Method for a Service Company

Coast-to-Coast Inc. is considering the purchase of an additional delivery vehicle for $39,000 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 $67,000 per year for each of the next five years. A driver will cost $46,000 in 20Y1, with an expected annual salary increase of $4,000 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 $
20Y2 $
20Y3 $
20Y4 $
20Y5 $

b. Compute the net present value of the investment, assuming that the minimum desired rate of return is 20%. 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 $

Homework Answers

Answer #1

a. Determine the expected annual net cash flows from the delivery truck investment for 20Y1-20Y5.

Annual Net Cash Flow
20Y1 $67000-46000-2000 = 19000
20Y2 $15000
20Y3 $11000
20Y4 $7000
20Y5 $3000

b. Compute the net present value of the investment, assuming that the minimum desired rate of return is 20%. 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 $40000
Investment -39000
Net present value $1000
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Net Present Value Method for a Service Company Coast-to-Coast Inc. is considering the purchase of an...
Net Present Value Method for a Service Company Coast-to-Coast Inc. is considering the purchase of an additional delivery vehicle for $39,000 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 $67,000 per year for each of the next five years. A driver will cost $46,000 in 20Y1, with an expected...
Net Present Value Method for a Service Company Coast-to-Coast Inc. is considering the purchase of an...
Net Present Value Method for a Service Company Coast-to-Coast Inc. is considering the purchase of an additional delivery vehicle for $38,000 on January 1, 20Y1. The truck is expected to have a five-year life with an expected residual value of $6,000 at the end of five years. The expected additional revenues from the added delivery capacity are anticipated to be $60,000 per year for each of the next five years. A driver will cost $43,000 in 20Y1, with an expected...
Net Present Value Method for a Service Company Coast-to-Coast Inc. is considering the purchase of an...
Net Present Value Method for a Service Company Coast-to-Coast Inc. is considering the purchase of an additional delivery vehicle for $70,000 on January 1, 20Y1. The truck is expected to have a five-year life with an expected residual value of $15,000 at the end of five years. The expected additional revenues from the added delivery capacity are anticipated to be $65,000 per year for each of the next five years. A driver will cost $40,000 in 20Y1, with an expected...
Net Present Value Method On Time Delivery Inc. is considering the purchase of an additional delivery...
Net Present Value Method On Time Delivery Inc. is considering the purchase of an additional delivery truck for $32,000 on January 1, 20Y4. The truck is expected to have a five-year life with an expected residual value of $5,000 at the end of five years. The expected additional revenues from the added delivery capacity are anticipated to be $68,000 per year for each of the next five years. A driver will cost $50,000 in 20Y4, with an expected annual salary...
AM Express Inc. is considering the purchase of an additional delivery vehicle for $31,000 on January...
AM Express Inc. is considering the purchase of an additional delivery vehicle for $31,000 on January 1, 20Y1. The truck is expected to have a five-year life with an expected residual value of $6,000 at the end of five years. The expected additional revenues from the added delivery capacity are anticipated to be $62,000 per year for each of the next five years. A driver will cost $45,000 in 20Y1, with an expected annual salary increase of $4,000 for each...
AM Express Inc. is considering the purchase of an additional delivery vehicle for $44,000 on January...
AM Express Inc. is considering the purchase of an additional delivery vehicle for $44,000 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 $70,000 per year for each of the next five years. A driver will cost $48,000 in 20Y1, with an expected annual salary increase of $4,000 for each...
On Time Delivery Inc. is considering the purchase of an additional delivery truck for $85,000 on...
On Time Delivery Inc. is considering the purchase of an additional delivery truck for $85,000 on January 1, 20Y4. The truck is expected to have a five-year life with an expected residual value of $8,000 at the end of five years. The expected additional revenues from the added delivery capacity are anticipated to be $70,000 per year for each of the next five years. A driver will cost $25,000 in 20Y4, with an expected annual salary increase of $1,000 for...
Net Present Value Method Rapid Delivery, Inc., is considering the purchase of an additional delivery vehicle...
Net Present Value Method Rapid Delivery, Inc., is considering the purchase of an additional delivery vehicle for $39,000 on January 1, 2016. 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 $49,000 per year for each of the next five years. A driver will cost $33,000 in 2016, with an expected annual salary increase...
Net Present Value Method Rapid Delivery, Inc., is considering the purchase of an additional delivery vehicle...
Net Present Value Method Rapid Delivery, Inc., is considering the purchase of an additional delivery vehicle for $57,000 on January 1, 2016. The truck is expected to have a five-year life with an expected residual value of $5,000 at the end of five years. The expected additional revenues from the added delivery capacity are anticipated to be $77,000 per year for each of the next five years. A driver will cost $54,000 in 2016, with an expected annual salary increase...
Rapid Delivery, Inc., is considering the purchase of an additional delivery vehicle for $30,000 on January...
Rapid Delivery, Inc., is considering the purchase of an additional delivery vehicle for $30,000 on January 1, 2016. The truck is expected to have a five-year life with an expected residual value of $5,000 at the end of five years. The expected additional revenues from the added delivery capacity are anticipated to be $48,000 per year for each of the next five years. A driver will cost $33,000 in 2016, with an expected annual salary increase of $3,000 for each...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT