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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 $125,000 and is expected to last 10 years. In addition, purchasing this minivan would require an immediate investment of $60,000 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 $50,000 per year in each of the 10 years. However, the minivan is expected to need an overhaul costing $20,000 at the end of the sixth year. Apnea has a cost of capital of 10% and an income tax rate of 40%. Calculate the net present value (NPV) of this investment opportunity.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9954266

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