Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

II. Investment Appraisal HK Parcels plc is a delivery company that has been making losses in recent years in a very competitive market. HK Parcels

image text in transcribed

image text in transcribed

image text in transcribed

II. Investment Appraisal HK Parcels plc is a delivery company that has been making losses in recent years in a very competitive market. HK Parcels plc is now considering a project to purchase 10 new electric delivery vehicles to replace older diesel delivery vehicles. The other information and requirements are available as the following photos showed: The total initial costs involved in buying the 10 new delivery vehicles are S600000. The delivery vehicles are to be depreciated over 5 years using the straight-line method, the residual value of the delivery vehicles is $ 50 000. In Year 1, each delivery vehicle will make 50 deliveries per day, charging customers $2.50 per delivery In both Year 2 and Year 3, each delivery vehicle will make 65 deliveries per day, charging customers $3.00 per delivery. In both Year 4 and Year 5, each delivery vehicle will make 80 deliveries per day, charging customers $3.50 per delivery. In all Years 1 to 5, drivers will be paid $0.50 per delivery. In both Year X and Year 2, other running costs (including depreciation) will be $800 a week per delivery vehicle. In both Year 3 and Year 4, other running costs (including depreciation) will be $900 a week per delivery vehicle. In Year 5, other running costs (including depreciation) will be $1 000 a week per delivery vehicle. On the last day of Year 5, all the delivery vehicles will be sold for a total of S50000 The delivery vehicles will be operated for 6 days per week, for 50 weeks a year. HK Parcels plc have had difficulties in raising funds to finance the project and the bank is only prepared to lend at a high rate of interest. The cost of capital for HK Parcels plc for the project is 20%. Required: (1) Calculate the net cash flow for each of the 5 years of the project. (2) Calculate the payback period of the project. (3) Calculate the net present value of the project. (4) Evaluate the project for HK Parcels plc, using your calculations

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

How Finance Works

Authors: Mihir Desai

1st Edition

1633696707, 978-1633696709

More Books

Students also viewed these Finance questions

Question

here) and other areas you consider relevant.

Answered: 1 week ago