Homework Answers
Solution a:
| Computation of annual net cash flows - Rapid delivery Inc. | |||||
| Particulars | 2016 | 2017 | 2018 | 2019 | 2020 |
| Additional revenues | $58,000.00 | $58,000.00 | $58,000.00 | $58,000.00 | $58,000.00 |
| Driver salary | -$42,000.00 | -$45,000.00 | -$48,000.00 | -$51,000.00 | -$54,000.00 |
| Operating costs | -$2,000.00 | -$2,000.00 | -$2,000.00 | -$2,000.00 | -$2,000.00 |
| Residual value | $5,000.00 | ||||
| Annual net cash flow | $14,000.00 | $11,000.00 | $8,000.00 | $5,000.00 | $7,000.00 |
Solution b:
| Computation of NPV | ||||
| Particulars | Amount | Period | PV Factor | Present Value |
| Cash Outflows: | ||||
| Cost of Vehicle | $30,000.00 | 0 | 1 | $30,000 |
| Present Value of Cash Outflows (A) | $30,000 | |||
| Cash Inflows: | ||||
| 2016 | $14,000.00 | 1 | 0.833 | $11,662 |
| 2017 | $11,000.00 | 2 | 0.694 | $7,634 |
| 2018 | $8,000.00 | 3 | 0.579 | $4,632 |
| 2019 | $5,000.00 | 4 | 0.482 | $2,410 |
| 2020 | $7,000.00 | 5 | 0.402 | $2,814 |
| Present Value of Cash Inflows (B) | $29,152 | |||
| Net Present Value (B-A) | -$848 | |||
Solution c:
As NPV is negative, therefore additional truck is not a good investment.
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