Question

Dimas Deliveries Inc. is considering investing $60,000 in a new delivery truck. The truck has no salvage value. The truck is expected to generate an annual net cash flow of $18,000 over its 5-year useful life. The company's hurdle rate for investment is 12%. Compute the net present value (NPV) of this investment opportunity.

Answer 1

The net present value (NPV) of the investment opportunity can be calculated by discounting the future cash flows to their present value.

Step-by-step explanation:

To calculate the net present value (NPV) of the investment opportunity, we need to discount the future cash flows to their present value. The formula to calculate NPV is:

NPV = CF0 + CF1/(1+r) + CF2/(1+r)^2 + ... + CFn/(1+r)^n

In this case, the initial investment is $60,000 and the net cash flows over the 5-year life of the truck are $18,000 per year. The hurdle rate is 12%.

Using the formula, the net present value is:

NPV = -60,000 + 18,000/(1+0.12) + 18,000/(1+0.12)^2 + 18,000/(1+0.12)^3 + 18,000/(1+0.12)^4 + 18,000/(1+0.12)^5

Calculating this equation will give you the net present value of the investment opportunity.