Buckeyes Farms is considering purchasing multiple tractors for a total purchase price of $540,000. The tractors...

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Buckeyes Farms is considering purchasing multiple tractors for a total purchase price of $540,000. The tractors are depreciated using MACRS for a three-year asset; they will be sold after three years for $60,000. Use of the tractors will require an increase in net operating working capital (small parts inventory) of $10,000 at the time of purchase. The increase in net operating working capital will be "recovered" at the end of year 3. The tractors will increase EBITDA by $250,000 each year over the next three years. Two years ago the company spent $5,000 to investigate which tractors to buy. Interest expense is $3,000 per year. The company's marginal tax rate is 35% per year. Cost of Capital = 13% MACRS depreciation percentages year MACRS depreciation percentages 0 1 0 33.33% 2 44.45% 3 14.81% a. What is the net investment in the tractors? (that is, what is the Year 0 net cash flow) b. What is the operating cash flow in year 1? c. What is the terminal (non-operating) cash flow at the end of year 3? d. The tractors' cost of capital is 13%, what is its Net Present Value? e. Calculate the IRR (Internal Rate of Return) of the Tractors. 4 7.41% Buckeyes Farms is considering purchasing multiple tractors for a total purchase price of $540,000. The tractors are depreciated using MACRS for a three-year asset; they will be sold after three years for $60,000. Use of the tractors will require an increase in net operating working capital (small parts inventory) of $10,000 at the time of purchase. The increase in net operating working capital will be "recovered" at the end of year 3. The tractors will increase EBITDA by $250,000 each year over the next three years. Two years ago the company spent $5,000 to investigate which tractors to buy. Interest expense is $3,000 per year. The company's marginal tax rate is 35% per year. Cost of Capital = 13% MACRS depreciation percentages year MACRS depreciation percentages 0 1 0 33.33% 2 44.45% 3 14.81% a. What is the net investment in the tractors? (that is, what is the Year 0 net cash flow) b. What is the operating cash flow in year 1? c. What is the terminal (non-operating) cash flow at the end of year 3? d. The tractors' cost of capital is 13%, what is its Net Present Value? e. Calculate the IRR (Internal Rate of Return) of the Tractors. 4 7.41%