the purchase of an additional delivery vehicle for 36000 on

the purchase of an additional delivery vehicle for $36,000 on kanusry 1, 20YI. The truck is expected to e years. The expected addtional revenues from the added delivery capacity are anticopated to be $63,000 per yoar for each of the next five have a five-year lfe with an expected residual value of $6,000 er eich of the neat nve years. A drver will cost S45.000 in 20i with an expected annual salary increase of $4,000 for each year thereafter. The anns operating costs for the truck are estimated to be $2,000 per yeatr Present Value of $1 at Compound Interest 0.943 0.909 0.893 0.870 833 o.?90 0826 0.797 0.756 0.694 0.840 ?.7s1 0.712 0.658 0.579 4 0.7920.6830.636 0.572 0.482 s o.747 0.6210.567 0497402 ?) 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.5130.4520.376 0.279 8 0.6270.467 0.404 .37 0.233 9 0.5920.4240.361 0.284 0.194 10 0.558 .36 0.322 0.247 0.162 Annual Net Cash Flow

Solution

Solution a:

Solution b:

Solution c:

As NPV is positive, therefore additional truck is a good investment.

Computation of Annual net cash flow - AM Express Inc.
Particulars	20Y1	20Y2	20Y3	20Y4	20Y5
Expected annual revenue	$63,000.00	$63,000.00	$63,000.00	$63,000.00	$63,000.00
Driver Cost	-$45,000.00	-$49,000.00	-$53,000.00	-$57,000.00	-$61,000.00
Annual operating cost	-$2,000.00	-$2,000.00	-$2,000.00	-$2,000.00	-$2,000.00
Residual value of truck					$6,000.00
Annual net cash flow	$16,000.00	$12,000.00	$8,000.00	$4,000.00	$6,000.00