True Fresh Grocery operates a chain of 40 grocery stores. Currently the company is considering starting a

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True Fresh Grocery operates a chain of 40 grocery stores. Currently the company is considering starting a new division, TrueFresh.com, to provide home delivery services. Customers will be able to order groceries by phone or using the Internet, and TrueFresh.com will deliver them within 24 hours at a price guaranteed to be identical to the prices charged in the company's stores. The company has projected revenue and cost related to this business for the next 7 years,
as follows:
Year 2 Year 3 Year 4 Year 6 Year 1 Year 7 Year 5 $3,011,654 $1,700,000 $1,870,000 $2,057,000 $2,262,700 $2,488,970 $2,73

The business will require an initial investment in delivery trucks and other equipment of $500,000. The trucks and equipment will be depreciated over a seven-year life using straight-line depreciation with a residual value of $80,000.
Required
Assume that True Fresh has decided to limit its analysis to 7 years. Calculate the net present value of the new business using a 14 percent required rate of return. Should True Fresh make the investment in the new business?

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at...
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