Net Present Value Method for a Service Company

AM Express Inc. is considering the purchase of an additional delivery vehicle for $33,000 on January 1, 20Y1. The truck is expected to have a five-year life with an expected residual value of $7,000 at the end of five years. The expected additional revenues from the added delivery capacity are anticipated to be $62,000 per year for each of the next five years. A driver will cost $45,000 in 20Y1, with an expected annual salary increase of $4,000 for each year thereafter. The annual operating costs for the truck are estimated to be $2,000 per year.

Net Present Value Method for a Service Company AM Express Inc. is considering the purchase of an additional delivery vehicle for $33,000 on January 1, 20Y1. The truck is expected to have a five-year life with an expected residual value of $7,000 at the end of five years. The expected additional revenues from the added delivery capacity are anticipated to be $62,000 per year for each of the next five years. A driver will cost $45,000 in 20Y1, with an expected annual salary increase of $4,000 for each year thereafter. The annual operating costs for the truck are estimated to be $2,000 per year Present Value of $1 at Compound Interest 1590 0.870 0.756 0.658 0.792 0.683 0.636 0.572 0.497 0.432 0.376 0.327 0.284 0.247 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 Year 696 0.943 0.890 0.840 10% 0.909 0.826 0.751 12% 0.893 0.797 0.712 4 0.747 0.705 0.665 0.627 0.592 0.558 0.621 0.564 0.513 0.467 0.424 0.386 0.567 0.507 0.452 0.404 0.361 0.322 8 10 a. Determine the expected annual net cash flows from the delivery truck investment for 20Y1-20YS5 Annual Net Cash Flow a. Determine the expected annual net cash flows from the delivery truck investment for 20Y1-20Y5. Annual Net Cash Flow 20Y1 20Y2 20Y3 20Y4 20Y5 b. Calculate the net present value of the investment, assuming that the minimum desired rate of return is 10%. Use the table of the present value of $1 presented above. When required, round to the nearest dollar. If required, use the minus sign to indicate a negative net present value Present value of annual net cash flows Investment Net present value