Apnea Video Rental Store is considering the purchase of an almost new minivan to

Question

Apnea Video Rental Store is considering the purchase of an almost new minivan to deliver and pick up video tapes from customers. The minivan will cost $45,000 and is expected to last 8 years. However, the minivan's engine will need to be overhauled at a cost of $4,000 at the end of year 3. In addition, purchasing the minivan would require an immediate investment of $20,000 in working capital which would be released for investment elsewhere at the end of the 8 years. The minivan is expected to have a $10,000 salvage value at the end of 8 years. This delivery service is expected to generate net cash inflows of $20,000 per year in each of the 8 years. Apnea's cost of capital is 15%. Calculate the net present value (NPV) of this investment opportunity. Do not use decimals in your answer.

Future Value of a Lump-Sum Rate of interest per period in percent 6 Periods | 3% 4 5% 8° 90 10 12 16 3 1.0927 1.1249 1.1576 1.1910 1.25971.2950 1.3310 1.4049 1.4815 5609 4 1.1255 1.1699 1.2155 1.2625 1.36051.4116 1.4641 1.57351.6890 1.8106 5 1.1593 1.2167 1.2783 1.3382 1.4693 1.5386 1.6105 1.7623 1.9254 2.1003 61.1941 1.2653 .3401 1.4185 1.58691.6771 1.7716 19738 2.1950 2.4364 71.2299 1.31591.4071 1.5036 1.7138 1.8280 .9487 2.2107 2.5023 2.8262 81.2668 1.3686 1.4775 1.59391.85101.9926 2.1436 2.4760 2.8526 3.2784 91.3048 1.42331.5513 1.6895 1.99902.1719 2.3580 2.773 3.25193.8030 10 1.3439 1.4802 .62891.7909 2.15892.3674 2.5938 3.10593.7072 4.4114 12 1.4258 1.6010 1.7959 2.0122 2.5182 2.8127 3.1384 3.89604.8179 5.9360 151.55801.80092.0789 2.3965 3.1722 3.6425 4.1773 5.4736 7.1379 9.2655 16 1.6047 1.8730 21829 2.5404 3.4259 3.97034.5950 6.1304 8.1372 10.7480 171.6529 1.9479.2920 2.6928 3.70004.3276 5.0545 6.8660 9.2765 12.4677 181.7024 2.0258 2.4066 2.85433.9960 4.71715.55997.6900 10.5752 14.4625 191.7535 2.1069 2.5270 3.0256 4.31575.1417 6.11598.6128 12.0557 16.7765 201.8061 2.1911 2.6533 3.2071 4.6610 5.6044 6.72759.6463 13.7435 19.4608 211.8603 2.2788 2.7860 3.39965.0338 6.1088 7.4003 10.803915.6676 22.5745 221.9161 2.3699 2.9253 3.6035 5.43656.6586 8.1403 12.1003 17.8610 26.1864 23 1.9736 2.4647 3.07153.81985.87157.25798.9543 13.5524 20.3616 30.3762 24 2.0325 2.5633 3.2251 4.04896.3412 7.9111 9.8497 15.178623.2122 35.2364 25 2.0938 2.6658 3.3864 4.2919 6.8485 8.6230 10.8347 17.0000 26.4619 40.8742 605.8916 10.5196 18.6792 32.9877 101.257 176.031 304.482 897.5972595.92 7370.20 Present Value of a Lump-Sum Rate of interest per period in percent 8 Periods | 3% 6 9% 10 14% 15% 20% 3 0.9151 0.8638 0.8396 0.7938 0.7722 0.7513 0.7118 0.6750 0.6575 0.5787 4 0.88850.82270.7921 0.7350 0.70840.6830 0.6355 0.5921 0.5718 0.4823 5 0.8626 0.78350.7473 0.6806 0.6499 0.6209 0.5674 0.5194 0.4972 0.4019 6 0.8375 0.7462 0.7050 0.6311 0.5963 0.5645 0.5066 0.4556 0.4323 0.3349 70.8131 0.7107 0.6651 0.5835 0.54700.5132 0.4523 0.3996 0.37590.2791 80.7894 0.6768 0.6274 0.5403 0.50190.4665 0.40390.35060.3269 0.2326 90.7664 0.6446 0.5919 0.5003 0.4604 0.4241 0.3606 0.3075 0.2843 0.1938 100.7441 0.6139 0.5584 0.4632 0.4224 0.3855 0.3220 0.2697 0.2472 0.1615 12 0.7014 0.55680.4970 0.3971 0.35550.3186 0.2567 0.20760.1869 0.1122 150.6419 0.4810 0.4173 0.3152 0.2745 0.2394 0.1827 0.1401 0.1229 0.0649 16 0.6232 0.4581 0.3937 0.29190.2519 0.2176 0.1631 0.1229 0.1069 0.0541 170.6050 0.4363 0.3714 0.2703 0.2311 0.1978 0.1456 0.1078 0.0929 0.0471 180.5874 0.4155 0.3503 0.2503 0.2120 0.1799 0.1300 0.0946 0.0808 0.0376 190.5703 0.39570.3305 0.23170.1945 0.1635 0.1161 0.0829 0.0703 0.0313 20 0.5537 0.3769 0.3118 0.2146 0.1784 0.1486 0.1037 0.0728 0.0611 0.0261 210.5375 0.35890.2942 0.1987 0.1637 0.135 0.0926 0.0638 0.0531 0.0217 24 0.4920 0.31010.2470 0.1577 0.1264 0.1015 0.0659 0.043 0.0349 0.0126 25 0.4776 0.2953 0.2330 0.1460 0.1160 0.0923 0.0588 0.0378 0.0304 0.0105 12%

Explanation / Answer

   CALCULATION OF NPV

PARTICULARS YEAR CASH FLOW TABLE FACTOR PRESENT VALUE

MACHINERY PURCHASED 1 (45000) 1 (45000)

WORKING CAPITAL 1 (20000) 1 (20000)

OVERHAULING 3 4000 0.6575 (2630)

NET CASH FLOWS 1-8 20000 4.4873 89746

WORKING CAPITAL 8 20000 0.3269 6538

SALVAGE VALUE 8 10000 0.3269 3269

     NPV $31923

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