Robinson Co. is interested in purchasing a new delivery vehicle so it can become a subcontractor with
Question:
Robinson Co. is interested in purchasing a new delivery vehicle so it can become a subcontractor with Amazon Logistics. The vehicle costs $83,000 and will generate delivery revenue of $33,000 in year 1; they anticipate this revenue will increase by 4% in each of the following five years (years 2-6) due to inflation. If Robinson Co. purchases the vehicle, it will take a loan for $70,000 that charges 3% annual interest and repay the loan in 6 equal end of year payments. At the end of the 6 years, the vehicle will be sold for $11,000 (in then-current dollars). The tax rate is 25%. Assuming that the vehicle is depreciated using MACRS (5-year property class) and that Robinson Co. uses an after-tax MARR of 10%, compute the PW and determine whether Robinson Co. should purchase the new business vehicle. Carry all interim calculations to 5 decimal places and then round your final answer to a whole number. Use a minus sign to enter your answer, if any. The tolerance is ± $10. Should Robinson Co. should purchase the delivery vehicle?
An introduction to management science quantitative approaches to decision making
ISBN: 978-1111532222
13th edition
Authors: David Anderson, Dennis Sweeney, Thomas Williams, Jeffrey Cam