Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Net present value method for a service company Coast - to - Coast Inc. is considering the purchase of an additional delivery vehicle for $

image text in transcribed
Net present value method for a service company
Coast-to-Coast Inc. is considering the purchase of an additional delivery vehicle for $54,000 on January 1,20Y1. The truck is expected to have a 5-year life with an expected
residual value of $6,000 at the end of 5 years. The expected additional revenues from the added delivery capacity are anticipated to be $69,000 per year for each of the next 5
years. A driver will cost $48,000 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 a. Determine the expected annual net cash flows from the delivery truck investment for 20Y1-20Y5.
Annual Net Cash Flow
b. Compute the net present value of the investment, assuming that the minimum desired rate of return is 6%. 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.
c. Is the additional truck a good investment based on your analysis?
because the net present value isNet present value method for a service company
Coast-to-Coast Inc. is considering the purchase of an additional delivery vehicle for $54,000 on January 1,20Y1. The truck is expected to have a 5-year life with an expected residual value of $6,000 at the end of 5 years. The expected additional revenues from the added delivery capacity are anticipated to be $69,000 per year for each of the next 5 years. A driver will cost $48,000 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
Year 6%10%12%15%20%
10.9430.9090.8930.8700.833
20.8900.8260.7970.7560.694
30.8400.7510.7120.6580.579
40.7920.6830.6360.5720.482
50.7470.6210.5670.4970.402
60.7050.5640.5070.4320.335
70.6650.5130.4520.3760.279
80.6270.4670.4040.3270.233
90.5920.4240.3610.2840.194
100.5580.3860.3220.2470.162
a. Determine the expected annual net cash flows from the delivery truck investment for 20Y120Y5.
Year Annual Net Cash Flow
20Y1 $fill in the blank 1
20Y2 $fill in the blank 2
20Y3 $fill in the blank 3
20Y4 $fill in the blank 4
20Y5 $fill in the blank 5
b. Compute the net present value of the investment, assuming that the minimum desired rate of return is 6%. 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.
Line Item Description Amount
Present value of annual net cash flows $fill in the blank 6
Investment fill in the blank 7
Net present value $fill in the blank 8
c. Is the additional truck a good investment based on your analysis?
, because the net present value is
.
image text in transcribed

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

Accounting Principles Part 2

Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Kinnear, Joan E. Barlow

6th Canadian edition Volume 1

1118306791, 978-1118306796

More Books

Students also viewed these Accounting questions

Question

construct break-even, contribution and profit- volume graphs; LO1

Answered: 1 week ago