03 Jan Edgar Sloan has decided to start a small delivery
Edgar Sloan has decided to start a small delivery business to help support himself while attending school. Mr. Sloan expects demand for delivery services to grow steadily as customers discover their availability. Annual cash outflows are expected to increase only slightly because many of the business operating costs are fixed. Cash inflows and outflows expected from operating the delivery business follow: Year of Operation Cash Inflow Cash Outflow 2018.. $16,400 $4,400 2019 17,200.. 4,800 2020 18,000.. 7,600 2021 19,600.. 6,400 The used delivery van Mr. Sloan plans to buy is expected to cost $36,000. It has an expected Useful life of four years and a salvage value of $8,000. At the end of 2019, Mr. Sloan expects to pay additional costs of approximately $1,600 for maintenance and new tires. Mr. Sloan s desired rate of return is 10 percent. Required Round computations to the nearest whole penny. a. Calculate the net present value of the investment opportunity. b. Indicate whether the investment opportunity is expected to earn a return above or below the desired rate of return. Should Mr. Sloan start the delivery business?
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