# Question: Speedy Delivery Inc is considering the purchase of an additional

Speedy Delivery Inc. is considering the purchase of an additional delivery truck for \$110,000 on January 1, 2012. The truck is expected to have a five-year life with an expected residual value of \$15,000 at the end of five years. The expected additional revenues from the added delivery capacity are anticipated to be \$70,000 per year for each of the next five years. A driver will cost \$40,000 in 2012, with an expected annual salary increase of \$1,000 for each year thereafter. The insurance for the truck is estimated to cost \$2,000 per year.
a. Determine the expected annual net cash flows from the delivery truck investment for 2012â€“2016.
b. Calculate the net present value of the investment, assuming that the minimum desired rate of return is 12%. Use the present value of \$1 table appearing in Exhibit 1 of this chapter.
c. Is the additional truck a good investment based on your analysis?

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• CreatedFebruary 04, 2014
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