AM Express tnc. is considering the purchase of an addisional delivery vehide for

Question

AM Express tnc. is considering the purchase of an addisional delivery vehide for $33,000 on January 1, 20Y1. The truck is expected to have a five-year life with an expected residual value of $6,000 at the end of five years. The expected additional revenves frem the added delivery capaoty are anticiputed to be $o5,000 per rear for each of to next five years A driver wil cost S47,000 in 20Y1, with an expected annual salary increase of $4,000 for each .ear thereaftet. The anal operating costs for the truck are estimated to be $2,000 per year Present Value of $1 at Compound Interest 10943 0.90.893 0.870 833 0.890 0.826 0797 756 0 694 30.840 0.7S1 0.712 0.658 0.59 40.752 0.5?? 0A36 0.572 0.482 0747 0.621 0.567 0497 0.402 6 0.705 0.564 0.50 0.432 0.335 70.665 0.513 0.452 .376 0.279 8 0.27 0.467 0.404 0.327 0.233 9 0.592 0.424 .361 0.24 0.194 0 0.558 0.386 .322 0.247 0.162 a. Deter-the expected annual net cash flows from the delivery truck investment for 20Y1-2015. Annsal Net Carsh low b. Calculate the 'et present vahie of the investmert, asumine that the um desred rate of return is l5%. Use the table-the-wet w presented above. When required,round to the nearest dollar. f required, use the minss sign to indcate a negative net present value Present value of annual net cash fow Less investment Net present valu AMSUN

Explanation / Answer

Solution a:

Solution b:

Year Additional revenue Driver salary Operating costs Residual Value Annual Net Cash Flows (revenue -driver salary- operating costs + residual value) 20x1 $65,000.00 $47,000.00 $2,000.00 $0.00 $16,000.00 20x2 $65,000.00 $51,000.00 $2,000.00 $0.00 $12,000.00 20x3 $65,000.00 $55,000.00 $2,000.00 $0.00 $8,000.00 20x4 $65,000.00 $59,000.00 $2,000.00 $0.00 $4,000.00 20x5 $65,000.00 $63,000.00 $2,000.00 $6,000.00 $6,000.00

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