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In order to avoid hiring an outside firm to perform your firm’s special cargo delivery needs,...

In order to avoid hiring an outside firm to perform your firm’s special cargo delivery needs, you consider buying a new truck for $40,000. You have been using a trucking service one day every other week for $200/day, plus $1 per mile. And you always give the driver a $40 tip. Most trips are 80 -100 miles. You estimate that your expense of the new truck will be $0.45/mile plus insurance of $1200/year. You would not hire any additional employees; you would just reallocate their time. After 8 years, you figure the truck will be worth $15,000 at which point you’d sell it. If your cost of capital is 9%, is this a positive NPV project? Hint: lay out the savings from NOT using the service as a positive cash flow. Then, as negative cashflows, layout the cost of buying the truck and doing this yourself. Using excel to figure out cash flow in year 1,2,8 & NPV in year 1,2

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jeff jeffy answered 1 year ago
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