Chaotic Industries is considering an investment in a fleet of 10 delivery vans to take its products to customers. The vans will cost $15,000 each to buy, payable immediately. The annual maintenance and operating costs are expected to total $20,000 for each van, including the driver’s salary. The vans are expected to operate successfully for six years, at the end of which period they will all be sold, with disposal proceeds expected to be $3,000 per van. At present, the business uses a commercial carrier for all of its deliveries. It is expected that this carrier will charge a total of $230,000 each year for the next five years to undertake the deliveries. The Company’s discount rate is 8%. As the financial manager of Chaotic, would you recommend this investment?
Im not even sure where to start, although somethin tells me Im missing something. Thanks.