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Rapid Delivery, Inc. is considering the purchase of an additional delivery vehicle for $\$ 38,000$ on January $1$, $2010$. The truck is expected to have a five-year life with an expected residual value of $\$ 5,000$ at the end of five years. The expected additional revenues from the added delivery capacity are anticipated to be $\$ 60,000$ per year for each of the next five years. A driver will cost $\$ 43,000$ in $2010$ , with an expected annual salary increase of $\$ 2,000$ for each year thereafter. The insurance for the truck is estimated to cost $\$ 4,000$ per year.

Is the additional truck a good investment based on your analysis?

Solution

VerifiedIn this exercise, we are asked to determine if the additional delivery truck is a good investment based on the evaluation using the net present value method.

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