Speedy Movers is considering the purchase of a new moving truck that will reduce fuel and maintenance costs as well as increase revenues. Data related to the new truck follows:
Assume all cash flows occur at the end of the year and the company will depreciate the truck using straight-line depreciation. Calculate the net present value of the truck. Should the company purchase the new truck? Explain your answer.
Definitions:
Cash Flows
The total amount of money being transferred into and out of a business, particularly in terms of operational, investment, and financing activities.
Interest Rate
The percentage of a sum of money charged for its use, typically expressed as an annual percentage rate.
Interest Rate
The percentage of a loan amount charged by lenders to borrowers for the use of money, or the rate earned on deposit accounts.
Net Present Value
A method used in capital budgeting to analyze the profitability of an investment by calculating the difference between the present value of cash inflows and the present value of cash outflows over a period of time.
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