You are thinking of starting a food delivery service. If you decide to go ahead, you would need to purchase a vehicle for $20,000 and establish a cash balance of $100 to use to make change for customers. The CCA rate for vehicles is 30%. The estimated annual pre-tax net operating cash flow is expected to be $8,000. The small business tax rate of 18.62% would apply. An appropriate discount rate for this type of business is 12%.

a) What is the NPV of starting the business, operating it for 2 years and keeping the vehicle (but not the cash balance) after that?

b) What is the NPV of starting the business, operating it for 2 years and then winding up all aspects of the business, including selling the vehicle for $10,000? The business has no other automotive assets.

c) Should you go ahead with the business? Why or why not? (A one sentence answer is fine, but it should refer to the impact on you, not just the numbers).

Answer rating: 100% (QA)

a The NPV of starting the business operating it for 2 years and keeping the vehicle but not the cash ... View the full answer