(LO 9-3) Arkansas Best Freightways is considering a purchase of three different potential trucks. it is considering three different investment scenarios and their respective cash flows. Arkansas Best Freightways uses a cost of capital of 9 percent to evaluate the investments.

Required:
1. Calculate the net cash flows (not discounted) over the life of the three investments.
2. Use the Excel NPV() function to calculate the net present value for each of the three possible investments, using the 9 percent cost of capital as the interest (or discount) rate.
3. Which investment has the highest net present value (NPV)? The lowest NPV?

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1234567 1 Problem 1 A Year Year 0 (today) Year 1 B E F Investment 1 Investment 2 Investment 3 Cost of Capital Buy New Truck Increased Profits (85,000) (105,000) (125,000) 9% 25,000 20,000 40,000 Year 2 Increased Profits 25,000 30,000 30,000 Year 3 Increased Profits 25,000 40,000 20,000 Year 4 Increased Profits 25,000 50,000 10,000