Question

Whitney purchased two trucks for her warehouse for a total of $54,000. This investment saved her...

Whitney purchased two trucks for her warehouse for a total of $54,000. This investment saved her $14,500 in truck rental charges every year (from the 1st year), for 10 years. At the end of year 10, she sells both the trucks for a total of $15,000.

a. What is the Net Present Value (NPV) of the investment if the required rate of return is 6%?

b. Does the investment meet the required rate of return?

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Answer #1
Year Cashflows PVF at 6% Present values
0 -54000 1 -54000
1 14500 0.943396 13679.25
2 14500 0.889996 12904.95
3 14500 0.839619 12174.48
4 14500 0.792094 11485.36
5 14500 0.747258 10835.24
6 14500 0.704961 10221.93
7 14500 0.665057 9643.328
8 14500 0.627412 9097.479
9 14500 0.591898 8582.528
10 29500 0.558395 16472.65
NPV 61097
Yes, investment meet the required rate of return.
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