Investment decision$-$ whether to invest or not

Johnny is considering the purchase of a refrigerated van in which he can travel and

deliver cakes and other items to customers living in remote areas. The original

purchase price of the van $($beginning of year $1)$ is expected to be $$185000$ and its

expected useful life is $6$ years. Johnny expects the van to generate additional cash

sales revenue in year $1$ of $$65000,$ with associated cash expenses of $$25000.$ The

additional sales revenue from and expenses of the van are projected to increase by

$10$ per cent each year. Ignore company income taxes.

Johnny estimates the required rate of return to be $10\%.$

Required

a$.$ Calculate the net present value for the investment and state $($with a

justification of your answer$)$ whether Johnny should purchase the refrigerated

van.

b$.$ Calculate the payback period for the investment and state $($with a justification$)$

whether Johnny should purchase the refrigerated van.