. 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 initialcosts involved in buying the 10 new delivery vehicles are$600000. The delivery vehicles are to be depreciated over 5 years using thestraight-line method, the residual value of the delivery vehicles is $ 50 000.

In Year 1, each delivery vehicle will make 50 deliveries per day, chargingcustomers $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.

Inall Years l to 5, drivers will be paid $0.50 per delivery.

In both Year l 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 perdelivery vehicle.

On the last day of Year 5, all the delivery vehicles will be sold for a total of$50000

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 thebank is only prepared to lend at a high rate of interest. The cost of capital for HKParcels 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 ple, using your calculations