Apnea Video Rental Store is considering the purchase of an almost new minivan to
ID: 2473722 • Letter: A
Question
Apnea Video Rental Store is considering the purchase of an almost new minivan to deliver and pick up video tapes from customers. The minivan will cost $95,000 and is expected to last 10 years. However, the minivan's engine will need to be overhauled at a cost of $5,000 at the end of year 3. In addition, purchasing this minivan would require an immediate investment of $15,000 in working capital which would be released for investment elsewhere at the end of the 10 years. The minivan is expected to have a $10,000 salvage value at the end of 10 years. This delivery service is expected to generate net cash inflows of $20,000 per year in each of the 10 years. Apnea's cost of capital is 8%. Calculate the net present value (NPV) of this investment opportunity. Do not use decimals in your answer. You will need to use the time value of money factors posted on carmen to answer this question. No credit will be awarded for this question using a means other than these table factors to answer this question.
Explanation / Answer
Year
Outflows
WC Outflow
Total Outflow
Inflows
PVF@8%
PV of inflows
PV of Outflows
NPV Profit
0
95000
15000
110000
1
110000
1
0
20000
0.925926
18518.51852
2
0
20000
0.857339
17146.77641
3
5000
5000
20000
0.793832
15876.64482
3969.161205
4
0
20000
0.73503
14700.59706
5
0
20000
0.680583
13611.66394
6
0
20000
0.63017
12603.39254
7
0
20000
0.58349
11669.80791
8
0
20000
0.540269
10805.37769
9
0
20000
0.500249
10004.97934
10
0
20000
0.463193
9263.869762
11
10000
0.428883
4288.828593
138490.4566
113969.1612
24521
Year
Outflows
WC Outflow
Total Outflow
Inflows
PVF@8%
PV of inflows
PV of Outflows
NPV Profit
0
95000
15000
110000
1
110000
1
0
20000
0.925926
18518.51852
2
0
20000
0.857339
17146.77641
3
5000
5000
20000
0.793832
15876.64482
3969.161205
4
0
20000
0.73503
14700.59706
5
0
20000
0.680583
13611.66394
6
0
20000
0.63017
12603.39254
7
0
20000
0.58349
11669.80791
8
0
20000
0.540269
10805.37769
9
0
20000
0.500249
10004.97934
10
0
20000
0.463193
9263.869762
11
10000
0.428883
4288.828593
138490.4566
113969.1612
24521
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.