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Jeremiah runs a successful BBQ catering business in Clarksville and is considering buying a new truck to help him cater larger jobs. The truck would
Jeremiah runs a successful BBQ catering business in Clarksville and is considering buying a new truck to help him cater larger jobs. The truck would cost 56,000 and is expected to have a five year life with a salvage value of 12,000 at the end of five years. Jeremiah predicts that he can generate additional sales of 65,000 per year for the five years and will have the following expenses. A new employee will be hired to drive/maintain the truck at an annual salary of 40,000 for the first year, with a 1,800 raise every year. Insurance on the new truck is estimated at 3,500 per year. Requirements: 1. Determine the expected annual cash inflows for each of the next five years. Show your work and label your numbers. Turn page over. 2. Calculate the net present value of the investment. Assume we need a minimum desired rate of return of 14%. Show your calculations including the factors you used from the present value tables. 3. Based on your analysis, should we purchase this new truck? Yes or No. And give two specific reasons why
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