AM Express Inc. is considering the purchase of an additional delivery vehicle for $55,000 on January 1, 2016. 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 $58,000 per year for each of the next five years. A driver will cost $42,000 in 2016, with an expected annual salary increase of $1,000 for each year thereafter. The annual operating costs for the truck are estimated to be $3,000 per year.

a. Determine the expected annual net cash flows from the delivery truck investment for 2016-2020.

b. Calculate the net present value of the investment, assuming that the minimum desired rate of return is 12%. Use the present value of $1 table appearing in Exhibit 2 of this chapter.

c. Is the additional truck a good investment based on your analysis? Explain.