Question
In: Finance
11-X CAPITAL BUDGETING & SALVAGE VALUE. An emergency response company can purchase a new ambulance for...
11-X
CAPITAL BUDGETING & SALVAGE VALUE.
An emergency response company can purchase a new ambulance for $150,000 and must add $100,000 of equipment, for a total cost of $250,000.
The company projects that its net cash flow over the next five years will be: $65,000, $75,000, $100,000, $68,000, $73,000. The salvage value of the vehicle will be $13,000 at the end of year 5. Assume that the vehicle is sold at the end of year 5.
Calculate the NPV of the ambulance if the required rate of return is 9.0%.
Please show step by step, thank you ~
Solutions
Expert Solution
Net Present Value (NPV) of the Ambulance
Initial Investment
Initial Investment = Purchas price of the new Ambulance + Amount for the additional equipment
= $150,000 + $100,000
= $250,000
Present Value of the annual cash inflows
|
Year |
Annual Cash Flow ($) |
Present Value factor at 9% |
Present Value of Cash Flow ($) |
|
1 |
65,000 |
0.917431 |
59,633.03 |
|
2 |
75,000 |
0.841680 |
63,126.00 |
|
3 |
1,00,000 |
0.772183 |
77,218.35 |
|
4 |
68,000 |
0.708425 |
48,172.91 |
|
5 |
73,000 |
0.649931 |
47,444.99 |
|
5 |
13,000 |
0.649931 |
8,449.11 |
|
TOTAL |
3,04,044.39 |
||
Net Present Value (NPV) = Present Value of annual cash inflows – Initial Investment
= $3,04,044.39 - $250,000
= $54,044.39
“Hence, the Net Present Value (NPV) of the Ambulance = $54,044.39”
NOTE
The Formula for calculating the Present Value Factor is [1/(1 + r)n], Where “r” is the Discount/Interest Rate and “n” is the number of years.
jeff jeffy answered 1 year agoRelated Solutions
The Bonavista Patient Transfer Company is considering the purchase of a new ambulance.
The Bonavista Patient Transfer Company is considering the purchase of a new ambulance. The decision will rest partly on the anticipated distance to be driven next year. The kilometers driven during the past five years are as follows: Year 1 3000 2 4000 3 3400 4 3800 5 3700 .1. Forecast the number of kilometers for next year using a two-year moving average. 2. Find the MAD based on the two-year moving average forecast in part (a). (Hint: You will have only three years of matched data.) 3. Use...
The Cleveland Patient Transfer Company is considering the purchase of a new ambulance. The decision will...
The Cleveland Patient Transfer Company is considering
the purchase of a new ambulance. The decision will rest partly on
the anticipated distance to be driven next year. The kilometres
driven during the past five years are as follows:
Year
Distance (Km)
1
3000
2
4000
3
3400
4
3800
5
3700
Forecast the number of kilometres for next year using a
two-year moving average.
Find the MAD based on the two-year moving average
forecast in part (a).
(Hint: You will...
For a capital lease with no salvage value or bargain purchase option, the amount recorded initially...
For a capital lease with no salvage value or bargain purchase
option, the amount recorded initially by the lessee as the leased
asset should normally:
Select one:
a. Exceed the total of the minimum lease payments.
b. Exceed the present value of the minimum lease payments at the
beginning of the lease.
c. Equal the total of the minimum lease payments.
d. Equal the present value of the minimum lease payments at the
beginning of the lease.
Capital Budgeting California Health Center, a for-profit hospital, is evaluating the purchase of a new diagnostic...
Capital Budgeting
California Health Center, a for-profit hospital, is evaluating
the purchase of a new diagnostic equipment, which costs $600,000
and has an expected life of five years. Average
investments in inventory and accounts receivable will be $50,000
and $200,000 respectively, while the average accounts payable
balance will be $30,000. The expected before-tax salvage value of
the equipment after five years’ use is $200,000. The equipment will
produce an annual revenue of $300,000 each year in years 1-3, and
$350,000...
CAPITAL BUDGETING Wells printing is considering the purchase of a new printing press. The total installed...
CAPITAL BUDGETING
Wells printing is considering the purchase of a new printing
press. The total installed cost of the press is $2.2 million.This
outlay will be partially offset by the sale of an existing press.
The old press has zero net book value, cost $1milion ten years ago
and can be sold currently for $0,2 million before taxes..As a
result of acquiring the new press, sales in each of the next five
years are expected to increase by $1.6 million...
The Carbondale Hospital is considering the purchase of a new ambulance. The decision will rest partly...
The Carbondale Hospital is considering the purchase of a new ambulance. The decision will rest partly on the anticipated mileage to be driven next year. The miles driven during the past 5 years are as follows:Year12345Mileage3,0503,9503,5003,8503,700 a) Using a 2-year moving average, the forecast for year 6= _______ miles (round your response to the nearest whole number).
The Carbondale Hospital is considering the purchase of a new ambulance. The decision will rest partly...
The Carbondale Hospital is considering the purchase of a new
ambulance. The decision will rest partly on the anticipated mileage
to be driven next year. The miles driven during the past 5 years
are as follows:
Year 1 2
3 4 5
Mileage 3,000 3,950
3,450 3,800 3,750
a) Using a 2-year moving average, the forecast for year 6
=
3775 miles (round your response to the nearest whole
number).
b) If a 2-year moving average is used to make...
The Carbondale Hospital is considering the purchase of a new ambulance. The decision will rest partly...
The Carbondale Hospital is considering the purchase of a new
ambulance. The decision will rest partly on the anticipated mileage
to be driven next year. The miles driven during the past 5 years
are as follows:
Year
1
2
3
4
5
Mileage
3,050
4,050
3,450
3,750
3,750
a)Using a 2-year moving average, the
forecast for year 6 (round your response to the nearest whole
number)?.
b) If a 2-year moving average is used to make the
forecast, the...
The Carbondale Hospital is considering the purchase of a new ambulance. The decision will rest partly...
The Carbondale Hospital is considering the purchase of a new
ambulance. The decision will rest partly on the anticipated mileage
to be driven next year. The miles driven during the past 5 years
are as follows:
Year
1
2
3
4
5
Mileage
3,000
4,050
3,400
3,800
3,700
a) Using a 2-year moving average, the forecast for year 6
= ? miles (round your response to the nearest
whole number).
b) If a 2-year moving average is used to make...
The Carbondale Hospital is considering the purchase of a new ambulance. The decision will rest partly...
The Carbondale Hospital is considering the purchase of a new
ambulance. The decision will rest partly on the anticipated mileage
to be driven next year. The miles driven during the past 5 years
are as follows:
Year
1
2
3
4
5
Mileage
3,000
4,050
3,400
3,750
3,700
a) Using a 2-year moving average, the forecast for year 6
=
miles (round your response to the nearest whole number).
b) If a 2-year moving average is used to make...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Consider the following network of a project consisting of 7 activities with a scheduled project duration...
- In 1941, President Roosevelt spoke about the “four freedoms.” For many in the country, however, these...
- Your friend is looking for investors in a risky business venture. To convince you to participate,...
- Suppose you observe the following situation: State of Economy Probability of State Return if State Occurs...
- Merger Analysis TransWorld Communications Inc., a large telecommunications company, is evaluating the possible acquisition of Georgia...
- Journal Entries and Trial Balance Elite Realty acts as an agent in buying, selling, renting, and...
- In racket Assume that the elements of a list are indexed starting with 1. Write a...
ADVERTISEMENT