Answer:
NPV = -$149,319.44
Explanation:
Ten cars will be needed, which can be purchased at a discounted price of $18,000 each. If this alternative is accepted, the following costs will be incurred on the fleet as a whole:
-
Annual cost of servicing, taxes and licensing $5,100
- Repairs, first year $3,000
- Repairs, second year $5,500
- Repairs, third year $7,500
the required rate of return or discount rate for Riteway is 20%.
Cash flows:
CF₀ = -$180,000
CF₁ = -($5,100 +$3,000) = -$8,100
CF₂ = -($5,100 + $5,500) = -$10,600
CF₃ = ($9,000 X 10) - ($5,100 + $7,500) = $90,000 - $12,600 = $77,400
using an excel spreadsheet, we can calculate the NPV with r = 20%
NPV = -$180,000 + $30,680.56 = -$149,319.44
