Melissa's Pet Shop is considering the purchase of a new delivery van.MelissaSmith, owner of the shop, has
Question:
Melissa's Pet Shop is considering the purchase of a new delivery van.MelissaSmith, owner of the shop, has compiled the following estimates in trying to determine whether the delivery van should be purchased:
Cost of the van | $40,600 | ||
Annual net cash flows | 6,900 | ||
Salvage value | 4,900 | ||
Estimated useful life | 8 years | ||
Cost of capital | 10% | ||
Present value of an annuity of 1 | 5.33493 | ||
Present value of 1 | 0.46651 |
Melissa's assistant manager is trying to convinceMelissathat the van has other benefits that she hasn't considered in the initial estimates. These additional benefits, including the free advertising the store's name painted on the van's doors will provide, are expected to increase net cash flows by $510each year.
(a)
Calculate the net present value of the van, based on the initial estimates.(Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round answer to 0 decimal places, e.g. 5,275.)
Net present value | $enter the net present value in dollars rounded to 0 decimal places |
Should the van be purchased?
Vanselect an option shouldshould not be purchased. |
(b)
(c)