10 Nov Central Drug Mart is investigating whether to inve
Central Drug Mart is investigating whether to invest in small hybrid automobiles. The new delivery service is forecast to increase prescription drug sales by $550,000 per year. The total variable costs are 60% of sales. Central Drug Mart will also charge a nominal delivery fee of $3 per delivery. The cost of new hybrid fleet is $950,000 with economic life of 7 years, after which time the salvage value would be $50,000. The company expects to make 10,000 deliveries per year. Further more, the drug mart finds that the new vehicles would save $60,000 per year in fuel costs compared to regular gasoline-powered vehicles. Spare parts inventory of $30,000 would have to be purchased Assume that the spare parts inventory is purchased at t=0. The company uses a 12% cost of capital. The tax rate is 35% and the vehicles’ CCA rate is 30%. What is the net present value of this fleet delivery project?
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