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Determine whether GoPuff should purchase new vehicle

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Question - GoPuff is interested in purchasing a new delivery vehicle so it can become a subcontractor with uber. The vehicle would cost $175,000 and generate delivery revenue of $35,000 for each of the next 6 years. If GoPuff purchases the vehicle, it will take a loan for $140,000. The terms of the loan stipulate that 5% annual interest would be charged and that the loan would be repaid in 6 equal end-of-year payments. At the end of the 6 years, the vehicle will have a salvage value of $15,000. The tax rate is 40%. Assuming that the vehicle is depreciated using MACRS (5-year property class) and that GoPuff uses an after-tax MARR of 10%, compute the PW and determine whether GoPuff should purchase the new business vehicle.

Reference no: EM133068546

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