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 each year thereafter. The operating costs for the truck is estimated to cost $9,000 per year.
a. Determine the expected annual net cash flows from the delivery truck investment for 20Y4-20Y8.
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?
Exhibit 2

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Present Value of $1 at Compound Interest 10% 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 1596 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 Year 6% 12% 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 0.840 0.792 0.747 0.705 0.592 10 0.558