The business seeks to invest in a new (used) delivery truck costing $8,000. Assume that CCA for this asset is fixed at $300 per year (($150 in first year!, Salvage value in year 10 is $500). The interest on the vehicle loan is 8%/year. Monthly costs of operating the vehicle (gas, insurance, registration, incidentals) are estimated at $85. In year five and onwards the business expects an additional $60/month in maintenance costs.

Baguette price: $3.99
Production: Year: 800 baguettes/month during year 1. Increasing by 10% each subsequent year. Costs of goods manufactured: $0.60/baguette
Overhead costs (utilities, rent, marketing, leasing): $1,500/months

a) Calculate NPV and make a statement on the expected profitability of this investment.

b) Calculate the internal rate of return (ITT) for this investment scenario. How does the businesses 8% vehicle loan compare to the calculated IRR?

c) Calculate the Benefit cost ratio of the net cash flows for is investment and interpret your result.

Answer rating: 100% (QA)

a Assuming a discount rate of 10 NPV 8000 30011 300112 300119 5001110 85121 01 012 014 85121 01 012 019 60121 01 012 014 NPV 8000 300909091 826446 0638298 851210 909091 0638298 60125 454545 0344828 NP... View the full answer