A new municipal refuse-collection truck can be purchased for $87, 000. Its expec

Question

A new municipal refuse-collection truck can be purchased for $87, 000. Its expected useful life is four years, at which time its market value will be zero. Annual receipts less expenses be approximately $18, 000 per year over the four-year study period. Use the PW method and a MARR of 15% to determine whether this is a good investment. Click the icon to view the interest and annuity table for discrete compounding when the MARR is 15% per year. The present value of the project is $ (Round to the nearest dollar.)

Explanation / Answer

Net present value = Present value of future cash flows – Initial investments

                             = ($18,000 × Aggregate 15% MARR after 4 years) - $87,000

                             = ($18,000 × 2.8550) - $87,000

                             = $51,390 - $87,000

                             = - $35,610

This is not a good investment, since the NPV is negative.

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