Biology Forums - Study Force

A new delivery van will cost a catering firm $40,000 (including all associated taxes and fees).  The catering firm plans to pay cash for this van and the van will generate $8,000 (net of any costs associated with maintaining the van) worth of services each year for five years. At the end of the fifth year, the van can be sold for an estimated value of $10,000. If the interest rate is 6 percent, should the catering firm buy the new delivery van?  If the interest rate were to suddenly rise to 8 percent, would this change the firm's decision?  Explain your answer, using present value calculations to support your conclusions.