Question
Crown Limousine Service is considering acquisition of an additional vehicle. The model under consideration will cost $80,000, have a 5 year life and a $20,000
Crown Limousine Service is considering acquisition of an additional vehicle. The model under consideration will cost $80,000, have a 5 year life and a $20,000 residual value. The company anticipates that the effect on annual net income will be as follows: Revenue $109,500 Less expenses: Driver 60,000 Fuel 3,750 Maintenance 1,600 Insurance 1,500 Depreciation 12,000 Miscellaneous 1,000 Total expense 79,850 Income before taxes 29,650 Taxes at 40% 11,860 Net Income 17,790 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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