The detail are: net annual cash inflow for each year $4,600 (four yr period). Purchase of delivery van $15,400, with expected life of four yrs and salvage value of $2600. Expect to pay $960 for maintenance at end of second yr. Desired rate of return is 9 percent.
It has been so long since I calculated this type of thing, that I don't remember where you find tables with compound interest rates and so on. If there aren't any tables, maybe you can get the approximate figure by calculating the first year at 9%, then the 2nd year at 9%, and so on.
The case outflow sounds like $15,400 immediately, plus $960 after 2nd year expires. The inflows sound like $4600 each year, as well as salvage value of $2600 at end of 4th year.
If you didn't know anything about rates of return, or the time value of money, at least a crude "payback" figure would be:
Outflow $15400+960=$16,360;
Inflow $4600x4+2600=$18400+2600=$21,000.
The crude payback figure would be inflow of 21000 less outflow of 16360 = $4640.
Net Present Value is always less than a future value. So whatever the answer turns out to be, it has to be less than $4640 (I think).
