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6. A delivery company is considering expanding its fleet of vehicles by 5 trucks this year. Through a special leasing program, each truck will cost
6. A delivery company is considering expanding its fleet of vehicles by 5 trucks this year. Through a special leasing program, each truck will cost $3000 now and $3000 per year for the next 7 years. At the end of 7 years, the company can expect to pay an additional "lease return" fee of $5000 (total). The business will only purchase the new vehicles if the expected increase in yearly revenues will offset the lease cost. The interest rate is 7% per year a. Draw the cash flow diagram. b. What yearly revenue (starting in year 1) is required to justify the fleet expansion? (Assume equivalent yearly revenues.) Assume the revenues justify the expansion. Alternatively, the company may choose to keep the fleet at its current size and add another shift to meet its anticipated delivery schedule. If the present value of the additional shift has been estimated at $100,000, should the company expand the fleet or add a shift? Justify your answer. c
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