By using the Net Present Value Method, determine whether Vicky Enterprise (Pty) Ltd should purchase a new delivery vehicle or whether the entity should outsource the delivery services to Fast and Serious (Pty) Ltd.

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Vicky Enterprise (Pty) Ltd is a wholesaler of various products. The company has its own vehicle which is used for delivering sales to customers. Vicky Enterprise (Pty) Ltd could, however, opt to outsource the delivery services to an external party, if needed. The company's delivery vehicle is due for replacement and therefore the Managing Director is contemplating whether to outsource Vicky Enterprise (Pty) Ltd.'s delivery services or to purchase a new delivery vehicle. Option to buy a new delivery vehicle: The following information was gathered regarding a new delivery vehicle: • The cost price of a new delivery vehicle is R620 000 and will be paid in full upon acquisition. • The vehicle has a useful life of 5 years (maximum period that the company will retain the vehicle). The vehicle has a residual value of R60 000 at the end of five years. Depreciation is calculated using the straight line method. . It is estimated that the total operating costs per vehicle (including depreciation) is R122 000 for the first year and R127 500 per annum for years two to five. Except for depreciation there is no other non-cash expense. • • Option to outsource the delivery service: Fast and Serious (Pty) Ltd provides delivery services for a number of companies in the area and offered to perform Vicky (Pty) Ltd's deliveries at a cost of R160 000 per year (to be paid at the end of the relevant year incurred). Additional information: The company's required rate of return is 10% per annum. Vicky Enterprise (Pty) Ltd is a wholesaler of various products. The company has its own vehicle which is used for delivering sales to customers. Vicky Enterprise (Pty) Ltd could, however, opt to outsource the delivery services to an external party, if needed. The company's delivery vehicle is due for replacement and therefore the Managing Director is contemplating whether to outsource Vicky Enterprise (Pty) Ltd.'s delivery services or to purchase a new delivery vehicle. Option to buy a new delivery vehicle: The following information was gathered regarding a new delivery vehicle: • The cost price of a new delivery vehicle is R620 000 and will be paid in full upon acquisition. • The vehicle has a useful life of 5 years (maximum period that the company will retain the vehicle). The vehicle has a residual value of R60 000 at the end of five years. Depreciation is calculated using the straight line method. . It is estimated that the total operating costs per vehicle (including depreciation) is R122 000 for the first year and R127 500 per annum for years two to five. Except for depreciation there is no other non-cash expense. • • Option to outsource the delivery service: Fast and Serious (Pty) Ltd provides delivery services for a number of companies in the area and offered to perform Vicky (Pty) Ltd's deliveries at a cost of R160 000 per year (to be paid at the end of the relevant year incurred). Additional information: The company's required rate of return is 10% per annum.

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