Drake Limousine Service is considering acquisition of an additional vehicle. The model under consideration will cost \(\$ 150,000\), have a five-year life, and a \(\$ 40,000\) residual value. The company anticipates that the effect on annual net income will be as follows:

Required
Calculate the net present value of the investment assuming the company has a required rate of return of 14 percent. Should the company invest in the new limousine?

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Revenue Less expenses: Driver $114,500 55,000 Fuel 8,750 Maintenance 1,600 Insurance 1,500 Depreciation Miscellaneous 12,000 1,000 Total expense 79,850 Income before taxes 34,650 Taxes at 40% 13,860 Net income $ 20,790