Part A

Net Present Value Method for a Service Company

AM Express Inc. is considering the purchase of an additional delivery vehicle for $25,000 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 $50,000 per year for each of the next 5 years. A driver will cost $36,000 in 20Y1, with an expected annual salary increase of $3,000 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%
1	0.943	0.909	0.893	0.870	0.833
2	0.890	0.826	0.797	0.756	0.694
3	0.840	0.751	0.712	0.658	0.579
4	0.792	0.683	0.636	0.572	0.482
5	0.747	0.621	0.567	0.497	0.402
6	0.705	0.564	0.507	0.432	0.335
7	0.665	0.513	0.452	0.376	0.279
8	0.627	0.467	0.404	0.327	0.233
9	0.592	0.424	0.361	0.284	0.194
10	0.558	0.386	0.322	0.247	0.162

1. Determine the expected annual net cash flows from the delivery truck investment for 20Y1-20Y5.

	Annual Net Cash Flow
20Y1	$________
20Y2	$________
20Y3	$________
20Y4	$________
20Y5	$________

2. Compute the net present value of the investment, assuming that the minimum desired rate of return is 15%. 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 flow	$_________
Less investment	$_________
Net present value	$_________

Part B

The following data are accumulated by Lone Peak Inc. in evaluating two competing capital investment proposals:

	3D Printer		Truck
Amount of investment	$88,000			$92,000
Useful life	4 years			7 years
Estimated residual value	0			0
Estimated total income over the useful life	$14,080			$40,250

Determine the expected average rate of return for each proposal. If required, round your answers to one decimal place.

3D Printer	____ %
Truck	____ %

Part C

A project has estimated annual net cash flows of $15,000 for two years and is estimated to cost $30,000. Assume a minimum acceptable rate of return of 20%. Use the Present Value of an Annuity of $1 at Compound Interest table below.

Present Value of an Annuity of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	1.833	1.736	1.690	1.626	1.528
3	2.673	2.487	2.402	2.283	2.106
4	3.465	3.170	3.037	2.855	2.589
5	4.212	3.791	3.605	3.353	2.991
6	4.917	4.355	4.111	3.785	3.326
7	5.582	4.868	4.564	4.160	3.605
8	6.210	5.335	4.968	4.487	3.837
9	6.802	5.759	5.328	4.772	4.031
10	7.360	6.145	5.650	5.019	4.192

Determine (1) the net present value of the project and (2) the present value index. If required, use the minus sign to indicate a negative net present value.

Net present value of the project (round to the nearest dollar)

$_____