Hlp

SECTION A: Answer all questions in this section. Question 1 A new van for your small delivery shop will cost 27000 to buy and will require ongoing maintenance expenditure of 1500 per year. The new van is far more fuel efficient than your old van and will reduce your consumption of fuel by 2400 litres per year. The fuel price is estimated to be 3 per litre this year, but it is expected to increase by 0.50 for the next 3 years and then to stabilise for the foreseeable future. The van will last for 20 years at which point it will need to be replaced and will have no salvage value. The discount rate is 8%. Answer the following questions 1.1 What is the net present value of investment in the van? (10 Marks) 1.2 What is the payback period? (10 Marks) 1.3 What is the equivalent annual cost of the van? (10 Marks) 1.4 What are the equivalent annual savings derived from the van? (10 Marks) 1.5 Compare the present value of the difference between the equivalence annual cost and savings over the life of the van, and show that it equals the net present value of the investment in the van (10 Marks)