Net present value method for a service company

Coast$-$to$-$Coast Inc. is considering the purchase of an additional delivery vehicle for

$$47,000$ on January $1,20Y1.$ The truck is expected to have a $5-$year life with an

expected residual value of $$5,000$ at the end of $5$ years. The expected additional

revenues from the added delivery capacity are anticipated to be $$67,000$ per year

for each of the next $5$ years. A driver will cost $$47,000$ 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 $20$Y$1-20$Y$5.$

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.

Present value of annual net cash flows

Investment

Net present value

c$.$ Is the additional truck a good investment based on your analysis?